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10. Convertible Note Payable
 12 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Convertible Note Payable

NOTE 10 – CONVERTIBLE NOTE PAYABLE

 

The following is a summary of convertible notes payable as of March 31, 2020:

 

Note Reference  Inception Date  Maturity   Coupon   Face Value   Unamortized Discount   Carrying Value 
Note 1  10/4/2019   10/4/2020    8%   $82,000   $18,868   $63,132 
Note 2  10/31/2019   12/15/2020    8%    208,000    53,298    154,702 
Note 3  12/5/2019   12/5/2020    8%    62,000    13,021    48,979 
Note 4  12/31/2019   12/31/2020    8%    62,000    9,181    52,819 
Note 5  1/27/2020   1/27/2021    8%    184,000    26,509    157,491 
Note 6  2/19/2020   2/19/2021    8%    78,000    15,826    62,174 
Note 7  3/10/2020   3/10/2021    8%    78,000    19,147    58,853 
                $754,000   $155,850   $598,150 

 

Between October 4, 2019 and March 10, 2020, the Company issued to GS Capital Partners, LLC, an accredited investor (“GS Capital”), Convertible Promissory Notes aggregating a principal amount of $734,000. The Company received an aggregate net proceeds of $725,500 after $28,500 in original note discount. The Company has agreed to pay interest on the unpaid principal balance at the rate of eight percent (8%) per annum from the date on which Notes are issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company shall have the right to prepay the Notes, provided it makes a payment to GS Capital as set forth in the agreements.

 

The outstanding principal amount of the Notes is convertible into the Company’s common stock at the lender’s option at $0.01 per share for the first six months of the term of the Notes. After the six-month anniversary, the conversion price is equal to 63% of the average of the three lowest trading prices of the Company’s common stock.

 

Accounting Considerations

 

The Company has accounted for the Notes as a financing transaction, wherein the net proceeds that were received were allocated to the financial instrument issued. Prior to making the accounting allocation, the Company evaluated the agreement under ASC 815 Derivatives and Hedging (“ASC 815”). ASC 815 generally requires the analysis embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. The material embedded derivative features consisted of the embedded conversion option and default puts. The conversion option and default puts bear risks of equity which were not clearly and closely related to the host debt agreement and required bifurcation. The contracts do not permit the Company to settle in registered shares and the contracts also contain make-whole provisions both of which preclude equity classification. Current accounting principles that are also provided in ASC 815 do not permit an issuer to account separately for individual derivative terms and features that require bifurcation and liability classification. Rather, such terms and features must be and were bundled together and fair valued as a single, compound embedded derivative.

 

Based on the previous conclusions, the Company allocated the cash proceeds first to the derivative components at its fair value with the residual allocated to the host debt contract, as follows:

 

   Note 1   Note 2   Note 3   Note 4   Note 5   Note 6   Note 7   Total 
Compound embedded derivative  $26,395   $68,030   $15,893   $10,812   $25,834   $14,095   $17,633   $178,692 
Convertible notes payable   48,605    133,970    44,107    49,188    152,666    60,905    57,367    546,808 
Original issue discount   7,000    6,000    2,000    2,000    5,500    3,000    3,000    28,500 
Face value  $82,000   $208,000   $62,000   $62,000   $184,000   $78,000   $78,000   $754,000 

 

The net proceeds were allocated to the compound embedded derivative and original issue discount. The notes will be amortized up to its face value over the life of Notes based on an effective interest rate. Amortization expense, interest expense and accrued interest for the year ended March 31, 2020 is as follows:

 

Note  

Interest

Expense

  

Accrued Interest

Balance

  

Amortization of

Debt Discount

 
 Note 1   $3,217   $3,217   $14,526 
 Note 2    5,956    5,956    20,732 
 Note 3    1,590    1,590    4,872 
 Note 4    1,237    1,237    3,631 
 Note 5    2,581    2,581    4,825 
 Note 6    701    701    1,269 
 Note 7    359    359    1,488 
     $15,641   $15,641   $51,343