Note 5 - Convertible Promissory Notes / Non-related Parties

6 Months Ended

Jun. 30, 2020

Disclosure Text Block [Abstract]

Note 5 - Convertible Promissory Notes / Non-related Parties

NOTE 5 – CONVERTIBLE PROMISSORY NOTES / NON-RELATED PARTIES

The Company has a collateralized convertible debt obligation with Auctus Fund, LLC, an unaffiliated entity, outstanding at June 30, 2020 and December 31, 2019 as follows:

Note (A)	Principal(1)	Less Debt Discount	Plus Premium	Net Note Balance	Accrued Interest
June 30, 2020	$         290,000	$                    -	$                 -	$         290,000	$      72,180
December 31, 2019	$         290,000	$                    -	$                 -	$         290,000	$      31,023

⁽¹⁾ Collateralized by the Company’s assets, including accounts receivable, cash and equivalents, inventory, property, equipment, intangibles. At June 30, 2020 and December 31, 2019, the Company’s assets consisted of cash and equivalents of $279 and $163, respectively, inventory of $80,404, and intangible assets of $275,000, for total carrying value of $355,683 and $355,567, respectively.

(A) On September 24, 2018 (the “Date of Issuance”) the Company issued a convertible promissory note (the “Note”) with a face value of $300,000, maturing on September 24, 2019, and a stated interest of 10% to a third-party investor. The note is convertible at any time after 1 month of the funding of the note into a variable number of the Company's common stock, based on a conversion rate of 50% of the lowest trading price for the 25 days prior to conversion. The note was funded on September 28, 2018, when the Company received proceeds of $276,250, after disbursements for the lender's transaction costs, fees and expenses which in aggregate resulted in a total discount of $23,750 to be amortized to interest expense over the life of the note. Additionally, the note’s 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 a premium on the note of $299,998 as a reduction to additional paid-in capital based on

a discounted “if-converted” rate of $1.825 per share (50% of the lowest trading price during the 25 days preceding the note's issuance), which computed to 164,383 shares of 'if-converted' common stock with a redemption value of $599,998 due to $3.65 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. During the six months ended June 30, 2019, the Company recorded discount and premium amortization of $11,875 and $149,999, respectively. The premium and discount were fully amortized at December 31, 2019. This note is currently in default (Note 7).

Along with the Note, on the Date of Issuance the Company issued 42,857 Common Stock Purchase Warrants (the “Warrants”), exercisable immediately at a fixed exercise price of $3.50 with an expiration date of September 24, 2023. The Company has determined that the Warrants are exempt from derivative accounting and were valued at $86,750 on the Date of Inception using the Black Scholes Options Pricing Model. Assumptions used for the Black Scholes Options Pricing Model include (1) stock price of $3.65 per share, (2) exercise price of $3.50 per share, (3) term of 5 years, (4) expected volatility of 3.87% and (5) risk free interest rate of 2.96%. The note proceeds of $300,000 were then allocated between the fair value of the promissory note ($300,000) and the Warrants ($86,750), resulting in a debt discount of $67,292. As the warrants are exercisable immediately, this debt discount was amortized in its entirety to interest expense on the Date of Issuance.

During the year ended December 31, 2019, the Company paid $10,000 towards principal on the Note, and $12,350 of accrued interest and $250 in conversion fees ($12,600 total) was converted into 30,000 shares of common stock.