Note 6. Notes Payable

9 Months Ended

Dec. 31, 2019

Note 6. Notes Payable

Starting in June, 2017 the Company has entered in to twenty-four loan agreements, twenty-two of which have been convertible notes with features enabling the note holder to convert loan principal, interest and selected conversion fees into the Class A common stock of the Company. Accounting for each basic note includes recognition of the principal and contra liability accounts for original issue discounts, beneficial conversion features in many instances, and derivative liabilities. The convertible features of the twenty-two loans also cause a separate (non-contra liability) derivative liability recognition apart from the underlying note.

The note disclosures below, in chronological order, relate to notes reflected on the balance sheets or relate to interest expense recognition, as appropriate, in the year to date periods covered in this report.

Notes Payable Funded in Twelve-month Period Ended March 31, 2018

Commitment Note and Convertible Note, Equity Line (Three Tranches) with 10% Interest Rate

On August 24, 2017, IronClad entered into an Investment Agreement to establish an equity line of funding for the potential future issuance and purchase of IronClad’s shares of Class A common stock. See Note 7.

Commitment Note, Equity Line, $82,500 with 10% Interest Rate.

As consideration for its commitment to purchase shares of IronClad’s Class A common stock pursuant to the Investment Agreement, IronClad issued to the counterparty of the agreement a seven-month 10% convertible promissory note (the “Commitment Note”) in the principal amount of $100,000.

The Commitment Note matured on March 24, 2018. The Commitment Note was convertible into shares of IronClad’s Class A common stock at the fixed price of $3.25 per share; provided, however, that at any time and from time to time after a default occurred solely due to the fact the Commitment Note was not retired on or before the maturity date, all or any part of the Commitment Note was convertible into shares of Class A common stock of the Company at a per share price equal to the lower of: (a) $3.25 or (b) 65% of the average of the two lowest per share trading prices of the Class A common stock during the twenty consecutive trading days prior to the conversion date.

The Commitment Note was included as a financing fee expense at the date of the transaction. The Commitment Note was to finance the $100,000 cost of the commitment fee to the counterparty of the Investment Agreement and was accordingly included in the financing fee expenses for the period ended September 30, 2017. The amount of the commitment fee could be reduced by $35,000 or $17,500 if a registration statement registering the shares that would be issued under the equity line became effective within 90 or 135 days, respectively, of August 24, 2017.

The registration statement was declared effective on December 18, 2017 a period less than 135 days (but more than 90 days) after August 24, 2017. Consequently, the principal balance of the commitment fee was reduced by $17,500 and $100,000 of financing fee expenses originally recognized in the three-month period ended September 30, 2017 were adjusted to reflect a lower $82,500 financing fee expense.

On March 24, 2018 the Commitment Note ($100,000 contractually reduced to $82,500 in 2017) reached its maturity date and was not repaid in cash. Consequently, the note was in “maturity date default” and, pursuant to the terms of the loan, was convertible at the lesser of $3.25 or 65% of the average lowest two trades for the prior 20 days, resulting in an initial recognition for derivative treatment.

Derivative Liability. The valuation of the derivative liability related to the $82,500 borrowing on the Convertible Note and with an intrinsic value of $0.70 per share (based on a $1.67 closing price less the $0.97 per share present value of the conversion price) was approximately $79,137 using a Black-Scholes valuation model. That amount was recorded as a new contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. This resulted in a net liability value of $3,362. The amount was amortized as interest expense over an estimated “remaining” three-month life of the already matured loan.

Interest Expense. During the nine-month period ended December 31, 2019, $2,102 of regular interest and $42,116 of default interest was expensed. During the nine-month period ended December 31, 2018, $11,623 of regular interest and $79,137 of the derivative liability note discount was recognized as interest expense.

Convertible Note, Equity Line, Initial Consideration: $165,000 First Tranche of Three with 10% Interest Rate.

On August 24, 2017, in connection with the entry into the Investment Agreement, IronClad also issued a 10% convertible note (the “Convertible Note”) in an aggregate principal amount of $330,000 with a 10% original issue discount (“OID”). The initial consideration in the amount of $165,000 was funded on August 24, 2017. The Company received net proceeds of $150,000 (which represents the deduction of the 10% original issue discount for the note holder’s due diligence and legal fees). The Company could make additional borrowings in such amounts and at such dates as the note holder may choose in its sole discretion. The balance of an individual borrowing matured seven months from its funding date.

The Convertible Note also had an embedded beneficial conversion feature (“BCF”) based on a stated conversion price of $1.00 per share. The market price of a share of IronClad’s common stock at the time of the first borrowing under the note was $3.50 thus establishing an intrinsic value of $2.50 on that date.

The Company received the first borrowing for $165,000 under the Convertible Note on August 24, 2017 and net cash proceeds of $150,000 were received after deducting for the original issue discount and lender transaction costs of $15,000. An additional $12,000 of costs was incurred by IronClad directly relating to the note. Both the $15,000 and the $12,000 were recorded as discount amounts on the $165,000 note payable and were amortized as interest expenses over the life of the borrowing. The maturity date of this borrowing under the note was seven months from its funding date which was March 24, 2018.

Between March 26, 2018 and February 25, 2019, the note holder exercised its rights under the conversion provisions and through the operation of seven conversion elections were issued, in total, 4,588,586 shares of stock which effectively repaid the loan balance. Additionally, between March 14, 2019 and March 28, 2019, the note holder elected to convert approximately $37,698 of accrued interest into 7,683,614 shares of Class A common stock.

The dates, shares issued and principal amounts repaid at each conversion event are as follows:

Conversion Date	Principal Outstanding	Principal Reduction	Shares Issued	Exercise Price
12/31/2017	$ 165,000
3/26/2018	$ 155,000	$ (10,000)	9,958	$ 1.00425
06/01/18	$ 135,000	$ (20,000)	32,219	$ 0.62000
07/17/2018	$ 115,000	$ (20,000)	61,538	$ 0.32500
8/23/2018	$ 105,000	$ (10,000)	73,260	$ 0.13650
09/14/18	$ 85,000	$ (20,000)	236,686	$ 0.08450
02/06/19	$ 45,000	$ (40,000)	2,051,282	$ 0.01950
02/25/19	$ -	$ (45,000)	2,123,643	$ 0.02119
		Total	4,588,586

The valuation of the BCF related to the $165,000 borrowing on the Convertible Note and with an intrinsic value of $2.50 per share (based on a $3.50 closing price less the $1.00 per share conversion price) was approximately $424,407 using a Black-Scholes valuation model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the beneficial conversion feature formally recorded was $138,000 ($165,000 net of $27,000) and was amortized as interest expense over the life of the loan.

On March 24, 2018 the first tranche of the 10% Convertible Note for $165,000 (less the $10,000 conversion in late March) reached its maturity date and was not repaid in cash. Consequently, the note was in “maturity date default” and, pursuant to the terms of the loan, was convertible at the lesser $1.00 or 65% of the average lowest two trades for the prior 20 days, resulting in an initial recognition for derivative treatment.

Derivative Liability. The valuation of the derivative liability related to the $165,000 (reduced to $155,000) borrowing on the Convertible Note and with an intrinsic value of $0.70 per share (based on a $1.67 closing price less the $0.97 per share present value of the conversion price) was approximately $158,276 using a Black-Scholes valuation model. That amount was recorded as a new contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. Since the undiscounted (and unconverted) amount of the note was $155,000 the derivative valuation was recorded as $155,000. The amount was amortized as interest expense over an estimated “remaining” three-month life of the already matured loan.

Interest Expense. During the nine-month period ended December 31, 2019, $0 of regular interest and $0 derivative liability note discount. In the case of this one note, the discount related to the derivative liability had been fully expensed prior to the quarter because all amounts owed relating to the note were converted as of March 1, 2019. During the nine-month period ended December 31, 2018, $15,694 of regular interest, $0 of original issue discount and $155,000 of derivative liability note discount was recognized as interest expense.

Convertible Note, Equity Line, Second Tranche of Three, $82,500 with 10% Interest Rate.

On October 23, 2017, a second borrowing of $82,500 under the Convertible Note for $330,000 was closed and funded. The Company received net proceeds of $75,000 after deducting for original issue discount and lender transaction costs of $7,500. An additional $6,000 of costs was incurred by IronClad relating to the Convertible Note. Both the $7,500 and the $6,000 were recorded as discount amounts on the $82,500 note payable and amortized as interest expenses over the life of the borrowing.

The maturity date of this borrowing under the Convertible Note was also defined to be seven months from its borrowing date which was May 24, 2018. The market price of a share of IronClad’s common stock at the time of funding was $4.40 making the intrinsic value of the derivative $3.40. The valuation of the BCF was estimated to be approximately $289,000 and was capped at $69,000, the otherwise undiscounted amount of the note payable.

The Third Tranche and last of this Equity Line is separately discussed several pages below.

Between March 14, 2019 and April 22, 2019, the holder of the note elected to convert $82,500 of principal into 18,630,240 shares of Class A common stock.

The dates, shares issued and principal amounts repaid at each conversion event are as follows:

Conversion Date	Principal Outstanding	Principal Reduction	Shares Issued	Exercise Price
12/31/18	$ 82,500
3/14/2019	$ 77,500	$ (5,000)	889,284	$ 0.0056225
03/25/19	$ 53,500	$ (24,000)	5,351,171	$ 0.0044850
03/27/19	$ 49,500	$ (4,000)	891,862	$ 0.0044850
03/28/19	$ 45,500	$ (4,000)	891,862	$ 0.0044850
04/12/19	$ 22,500	$ (23,000)	5,361,305	$ 0.0042900
04/16/19	$ 17,517	$ (4,983)	1,161,539	$ 0.0042900
04/22/19	$ -	$ (17,517)	4,083,217	$ 0.0042900
		Total	8,024,179

Interest Expense. During the nine-month period ended December 31, 2019, $406 of regular interest, $0 of original issue discount, and $0 derivative liability note discount was expensed. During the nine-month period ended December 31, 2018, $12,098 of regular interest, $20,916 of original issue discount and $57,024 of derivative liability note discount was recognized as interest expense.

Convertible Notes, Post Maturity Derivative Liabilities. At May 23, 2018 the second tranche of the 10% Convertible Note for $82,500 reached its maturity date and was not repaid in cash. Consequently, the note was in “maturity date default” and pursuant to the terms of the loan was convertible at the lesser of $1.00 or 65% of the average lowest two trades for the prior 20 days, resulting in initial recognition for derivative treatment.

Derivative Liability. The valuation of the derivative liability related to the $82,500 borrowing on the Convertible Note and with an intrinsic value of $0.6912 per share is approximately $57,024 using a Binomial pricing model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs). The amount was amortized as interest expense over an estimated “remaining” three-month life of the already matured loan.

Convertible Note, $88,000 with 12% Interest Rate.

On January 25, 2018 IronClad entered into a Securities Purchase Agreement to issue a 12% convertible note payable for an aggregate principal amount of $88,000. The Company received cash proceeds of $85,000 net of transaction costs of $3,000. The $3,000 was recorded as a discount amount on the note payable and was amortized as interest expenses over the life of the note. The general terms of the note, except for the principal amount borrowed, were identical to the initial 12% Convertible note entered into in 2017 and converted earlier in January 2018.

The note matured on October 30, 2018 and interest costs accrued on the unpaid principal balance at 12% annually until October 30, 2018, and after that if not paid at maturity interest accrued annually at 22% until the principal amount and all interest accrued and unpaid were paid.

The holder of the note, at its sole election, could convert the note into shares of common stock of the Company at any time during the period beginning on the date which was one hundred and eighty days following the date of the note (dated January 25, 2018) and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any.

The shares to be issued were a function of a variable conversion price which was 65% of a market price defined to be the lowest one day closing bid price for the Company’s common stock during the fifteen-day trading period ending on the last trading day prior to exercising the conversion right. The Company would keep available authorized shares reserved, initially 289,846 shares, but in any event authorized shares equal to six times the number of shares that would be issuable upon full conversion of the note from time to time.

Derivative Liability. At June 30, 2018 a derivative liability with an intrinsic value of $0.2404 was $57,990 using a binomial pricing model and a derivative liability note discount was recorded.

Interest Expense. The note was repaid in mid-July, 2018; thus, during the nine-month period ended December 31, 2019 no interest was recorded on the note. During the nine-month period ended December 31, 2018, $4,133 of regular interest and $1,178 of original issue discount, and $57,990 of derivative liability note discount was recognized as interest expense.

Working Capital Loan for Services to New Customer of IronClad Pipeline IC, Inc. with 8.5% Interest Rate.

On February 27, 2018, IronClad borrowed $255,000 gross proceeds as an initial advance on a Credit Agreement (the “Agreement”) with a lending party. The Agreement, agreed to by both parties on February 1, 2018, enabled the Company, at its sole election, to borrow up to an aggregate amount of $500,000. The outstanding balance of any advances accrued interest at an annual rate of 8.5%. There was a transaction financing fee of 2% for any amount drawn under the facility. Proceeds received net of the transaction fee were $250,000.

On March 21, 2018, IronClad borrowed additional $245,000 gross proceeds as a second advance under the Agreement. Proceeds received net of the transaction fee were $240,000.

During the period ended June 30, 2018, the Company repaid $125,000 of the principal, and then redrew another $100,000. The outstanding principal balance of this loan at June 30, 2018 was $475,000 and was subsequently repaid in full by a series of cash payments through September 11, 2018.

Interest is to be paid annually in cash on March 1, 2019 and 2020. Outstanding interest of $17,816 was not paid at March 1, 2019. The Company is negotiating with the lender to issue common stock in exchange for the accrued amount of interest owed. There was no penalty for any of the early principal repayments. The Company has pledged 500,000 of its common stock as collateral under the terms of the Agreement. In the event of default by the Company, the lender is entitled to receive one share of Company common stock for every one dollar in principle, interest, penalties, and fees that are owed and outstanding by the Company to the lender.

The Agreement is also supported by a personal $500,000 guarantee from an officer of the Company. IronClad owed the officer a 5% guarantee fee of $25,000; $15,000 was paid shortly after June 30, 2019 and the remaining $10,000 balance was paid in the three months ended December 31, 2019. The guarantee fee was reviewed and approved by the Compensation Committee of the Board (as were the two payments) which determined that the 5% fee was an appropriate market-based rate for guarantees of loans of this nature and comparable risk.

Terms of the Agreement specified that the uses of funds were to be limited to only supporting the operations of the service contract and loan repayment. The terms of the Agreement were amended, effective June 11, 2018, to also permit the use of funds for certain new patent application filings of IronClad.

Interest Expense. The note was repaid in mid-September, 2018; thus, during the nine-month period ended December 31, 2019 no interest was recorded on the note. During the nine-month period ended December 31, 2018, $16,137 of regular interest and $10,706 of original issue discount amortization was recognized as interest expense.

Convertible Note, $53,000 with 12% Interest Rate.

On February 27, 2018 IronClad entered into a Securities Purchase Agreement to issue a 12% convertible note payable for an aggregate principal amount of $53,000. The Company received cash proceeds of $50,000 net of transaction costs of $3,000. The $3,000 was recorded as a discount amount on the note payable and was amortized as interest expenses over the life of the note. The general terms of the note, except for the principal amount borrowed, were identical to the initial 12% Convertible note entered into in 2017 and converted earlier in January 2018.

The note matured on November 3, 2018 and interest costs accrued on the unpaid principal balance at 12% annually until November 30, 2018, and after that if not paid at maturity interest accrued annually at 22% until the principal amount and all interest accrued and unpaid were paid.

The holder of the note, at its sole election, could convert the note into shares of common stock of the Company at any time during the period beginning on the date which was one hundred and eighty days following the date of the note (dated February 27, 2018) and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any.

The shares to be issued were a function of a variable conversion price which was 65% of a market price defined to be the lowest one day closing bid price for the Company’s common stock during the fifteen-day trading period ending on the last trading day prior to exercising the conversion right. The Company kept available authorized shares reserved, initially 289,846 shares, but in any event authorized shares equal to six times the number of shares that would be issuable upon full conversion of the note from time to time.

Derivative Liability. The conversion feature of the note represented an embedded derivative. The derivative liability with an intrinsic value of $0.2981 was $42,862 using a binomial pricing model and was recorded as a derivative liability note discount. The loan principal plus accrued interest, together totaling $75,620, was repaid on August 21, 2018 and the note was fully retired.

Interest Expense. Because the note was repaid in August, 2018, no interest was recorded on the note during the nine-month period ended December 31, 2019. During the nine-month period ended December 31, 2018, $2,492 of regular interest and $2,585 of original issue discount and $42,862 of derivative liability note discount was recognized as interest expense.

Insurance Financing Note with 6% Interest Rate.

On March 16, 2018, IronClad purchased several lines of corporate insurance coverage for a set of annual premiums that totaled $30,719. To pay for the coverage, IronClad paid $2,631 down on the coverages and entered into a financing agreement to borrow the $28,087 balance owed for the coverage. Interest on the loan was approximately 6% and the loan was to be repaid by eleven monthly principal and interest installment payments of $2,631 each. The cost of the insurance was recorded as a prepaid asset and was amortized monthly over the annual period of the coverages.

On July 14, 2018, the outstanding loan principal balance was repaid plus accrued interest, both totaling $10,195, and the note was fully retired.

Interest Expense. Because the note was repaid in July, 2018 no interest was recorded on the note during the nine-month period ended December 31, 2019. During the nine-month period ended December 31, 2018, $726 of regular interest was recognized as interest expense

Convertible Note, Equity Line, Third Tranche of Three, $82,500 with 10% Interest Rate

On March 15, 2018, a third and final borrowing of $82,500 under the Convertible Note for $330,000 was closed and funded. The Company received net proceeds of $75,000 after deducting for original issue discount and lender transaction costs of $7,500 and an additional $6,000 of loan closing costs incurred by IronClad. The maturity date of this borrowing under the Convertible Note was also defined to be seven months from its borrowing date which was October 24, 2018. The market price of a share of IronClad’s common stock at the time of funding was $1.85 making the intrinsic value of the derivative $0.85.

The valuation of the BCF related to the $82,500 borrowing on the Convertible Note and with an intrinsic value of $0.85 per share (based on a $1.85 closing price less the $1.00 per share conversion price) was approximately $109,861 using a Black-Scholes valuation model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the beneficial conversion feature formally recorded was $69,000 ($82,500 net of $13,500) and was amortized as interest expense over the life of the loan.

On October 15, 2018, the third tranche reached its maturity date and was not repaid in cash. Consequently, the note was in “maturity date default” and, pursuant to the terms of the loan, was convertible at the lesser $1.00 or 65% of the average lowest two trades for the prior 20 days, resulting in an initial recognition for derivative treatment.

Derivative Liability. The valuation of the derivative liability related to the $82,500 borrowing on the Convertible Note and with an intrinsic value of $0.2432 per share was approximately $20,064 using a Black-Scholes valuation model. That amount was recorded as a new contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount was amortized as interest expense over an estimated “remaining” three-month life of the already matured loan.

The First and Second Tranches of this Equity Line are separately discussed several pages above.

Interest Expense. During the nine-month period ended December 31, 2019, $2,080 of regular interest, $0 of original issue discount, $0 of beneficial conversion and $0 of derivative liability and $134,308 of default interest was expensed. During the nine-month period ended December 31, 2018, $9,167 of regular interest, $11,544 of original issue discount and $59,004 of beneficial conversion and $17,166 of derivative liability note discount was recognized as interest expense.

Notes Payable Funded in Twelve-month Period Ended March 31, 2019

Convertible Note, $250,000 with 10% Interest Rate.

On June 26, 2018 IronClad entered into a Securities Purchase Agreement to issue a 10% convertible note payable for an aggregate principal amount of $250,000. The Company received cash proceeds of $235,000 net of transaction costs of $15,000. The $15,000 was recorded as a discount amount on the note payable and was amortized as interest expenses over the life of the note. The general terms of the note, except for the principal amount borrowed, were nearly identical to the initial 10% Convertible note entered into in 2017.

The note matured on December 26, 2018 and interest costs accrued on the unpaid principal balance at 10% annually until December 26, 2018, and after that if not paid at maturity interest accrued annually at 24% until the principal amount and all interest accrued and unpaid were paid.

The holder of the note, at its sole election, could convert the note into shares of common stock of the Company at any time on or following the date of the note from the and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any.

The shares to be issued were a function of a fixed conversion price of $1.00 per share, or an alternate variable conversion price, triggered by events such as stock splits, stock dividends or rights offerings which is 70% of a market price defined to be the lowest five day closing bid price for the Company’s common stock during the twenty-day trading period ending on the last trading day prior to exercising the conversion right. The Company kept available authorized shares reserved, initially 3,081,854 shares, but in any event authorized shares equal to five times the number of shares that would be issuable upon full conversion of the note from time to time.

As a commitment fee for the note, the Company issued the holder 240,384 shares of common stock to be held in escrow until the note was repaid. The holder kept the shares, if the note was not retired prior to its maturity date. The shares were valued at $165,865 and were recorded as a discount on the note and amortized through repayment of the note on November 1, 2018. Upon repayment of the note the shares were returned and the $165,865 expense was reversed.

Derivative Liability. The conversion feature of the note represented an embedded derivative. A derivative liability with an intrinsic value of $0.03281 was $189,211 using a binomial pricing model and was calculated as a discount to the note. That amount was recorded as a new contra-note payable amount (similar to the recorded OID and transaction costs and amounts discussed immediately below), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $26,014 ($250,000 net of $223,986) and was amortized as interest expense over the life of the loan. The remaining $163,197 was expensed as financing fees at the inception of the note.

Warrants and “Down Round” Feature. Included in the share purchase agreement was a common stock purchase warrant issued by the Company to the holder to purchase 62,500 shares of common stock at $3.00 per share, exercisable for four years. The warrants were valued at $43,121 using a Black Scholes option pricing model and were recorded as a discount on the note.

The warrant included a down round feature that would reduce the exercise price of the warrant if the Company sold or granted any option to purchase, or sell or grant any right to reprice, or otherwise disposed of or issued common stock or securities entitling any person or entity to acquire shares of common stock (upon conversion, exercise or otherwise) at an effective price per share less than the then exercise price. On January 17, 2019, the down round feature was triggered and the exercise price was reduced to $0.0195 and the number of warrants exercisable was increased to 9,615,385. As a result, the original valuation of $43,121 was increased to $164,132 and a reduction to retained earnings was recorded for the difference, similar to a dividend, in the amount of $121,011.

Interest Expense. Because the note was repaid in November, 2018, no interest was recorded on the note during the nine-month period ended December 31, 2019. During the nine-month period ended December 31, 2018, $8,873 of regular interest, $58,121 of original issue discount amortization, $165,865 of amortization of beneficial conversion feature, and $26,342 of derivative liability note discount was recognized as interest expense.

On October 11, 2018 the holder of the note converted $100,000 of the principal into 3,076,923 shares of Class A capital stock. On November 1, 2018 the Company paid off the remaining $150,000 of principal in cash.

Convertible Note, $115,500 with 12% Interest Rate.

On July 17, 2018, (transaction documents were originally dated June 29, but amended for action taken on July 17), IronClad issued a 12% convertible note (the “Convertible Note”) to a lender (the “Holder”) in an aggregate principal amount of $115,500. The Company received cash proceeds of $101,500 net of transaction costs of $14,000 that included $3,500 for attorneys’ fees. The note matured on July 18, 2019. Interest costs accrued on the unpaid principal balance at 12% annually until maturity, and after that, if not paid, interest accrued annually at 18% until any unpaid principal amount and unpaid interest accrued were paid.

The holder of the note, at its sole election, could convert the note into shares of common stock of the Company at any time during the period beginning on the date which is one hundred and eighty days following the date of the note (dated July 18, 2018) and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any.

The shares to be issued upon conversion were a function of a variable conversion price which is 65% of a market price defined to be the lowest one (1) trading price for the Company’s common stock during the fifteen (15) day trading period ending on the last trading day prior to the conversion date. The Company kept available authorized shares reserved, initially 1,500,000 shares. From January 22, 2019 thru April 4, 2019 the holder of the note elected to convert $115,500 of principal, $4,500 of financing fees and $8,448 of accrued interest into 14,646,896 shares of Class A common stock.

The dates, shares issued, and principal amounts repaid at each conversion event are as follows:

Conversion Date	Principal Outstanding	Principal Reduction	Shares Issued	Exercise Price
12/31/2018	$ 115,500
01/22/2019	$ 106,500	$ (9,000)	97,371	$ 0.0975650
02/04/2019	$ 91,500	$ (15,000)	794,872	$ 0.0195000
02/12/2019	$ 77,000	$ (14,500)	769,231	$ 0.0195000
02/20/2019	$ 57,500	$ (19,500)	1,025,642	$ 0.0195000
02/28/2019	$ 42,500	$ (15,000)	1,402,715	$ 0.0110500
03/11/2019	$ 30,000	$ (12,500)	2,105,264	$ 0.0061750
03/14/2019	$ 17,500	$ (12,500)	2,312,139	$ 0.0056225
03/26/2019	$ 4,000	$ (13,500)	3,121,517	$ 0.0044850
04/04/2019	$ -	$ (4,000)	932,401	$ 0.0042900

Derivative Liability. The valuation of the derivative liability related to the $115,500 borrowing on the Convertible Note and with an intrinsic value of $0.4751 per share was approximately $187,624 using a binomial pricing model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $101,500 ($115,500 net of $14,000) and was amortized as interest expense over the life of the loan. The remaining $86,124 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $(22*) of (negative*) regular interest, $0 of original issue discount, and $0 of derivative liability note discount was recognized as interest expense. During the nine-month period ended December 31, 2018, $6,303 of regular interest and $6,367 of original issue discount and $46,162 of derivative liability note discount was recognized as interest expense.

Convertible Note, $135,000 with 9% Interest Rate.

On July 11, 2018 IronClad entered into a Securities Purchase Agreement (SPA) to issue a 9% convertible note payable for an aggregate principal amount of $270,000 comprised of the First Note (“First Note Aa”) being in the amount of $135,000.00, and the remaining note in the amount of $135,000.00, (“Back End Note Ab”). The Company received cash proceeds of $126,500 from the First Note Aa net of transaction costs of $8,500. The $8,500 was recorded as a discount amount on the note payable and was amortized as interest expenses over the life of the note.

The First Note Aa matured on July 11, 2019 and interest costs accrued on the unpaid principal balance at 9% annually until July 11, 2019, and after that if not paid at maturity interest accrued annually at 24% until the principal amount and all interest accrued and unpaid were paid.

The Back-End Note Ab carried the same terms as the First Note Aa, except it could not be repaid, but only converted. The Company was under no obligation to accept the Back-End Note Ab, but could do so at its sole discretion, following 180 days from the date of the note (dated July 11, 2018). As part of the SPA, the holder issued the Company a collateralized secured promissory note in the amount of $131,500 that could be exchanged for cash against the Back-End Note Ab. On January 25, 2019, the holder of the note chose to cancel the Back-End Note Ab without the Company borrowing under the note.

The holder of the note, at its sole election, could convert the note into shares of common stock of the Company at any time during the period beginning on the date which was 180 days following the date of the note (dated July 11, 2018) and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any.

The shares to be issued were a function of a fixed conversion price of $1.00 per share for six months, and thereafter until maturity at a variable conversion price which was 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen-day trading period ending on the last trading day prior to exercising the conversion right. The Company kept available authorized shares reserved, initially 1,730,000 shares, but in any event the number of reserved shares at least equals 400% of the number of shares of Company common stock issuable upon conversion of the note. From February 4, 2019 thru April 17, 2019 the holder of the note elected to convert $135,000 of principal and accrued interest into common stock.

The dates, shares issued and principal amounts repaid at each conversion event are as follows:

Conversion Date	Principal Outstanding	Principal Reduction	Shares Issued	Exercise Price
12/31/2018	$ 135,000
02/04/2019	$ 120,000	$ (15,000)	808,303	$ 0.019500
03/01/2019	$ 111,500	$ (8,500)	921,451	$ 0.009750
03/21/2019	$ 99,000	$ (12,500)	2,876,192	$ 0.004615
03/29/2019	$ 77,000	$ (22,000)	5,218,503	$ 0.004485
04/04/2019	$ 56,000	$ (21,000)	4,895,105	$ 0.004290
04/16/2019	$ 29,000	$ (27,000)	6,293,706	$ 0.004290
04/17/2019	$ -	$ (29,000)	6,759,907	$ 0.004290

Derivative Liability. The valuation of the derivative liability related to the $135,000 borrowing on the First Note Aa and with an intrinsic value of $0.54 per share was approximately $248,386 using a binomial pricing model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $126,500 ($135,000 net of $8,500) and was amortized as interest expense over the life of the loan. The remaining $121,886 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $(697*) of (negative*) regular interest, $2,375 of unamortized original issue discount, and $35,351 of derivative liability note discount was recognized as interest expense. During the nine-month period ended December 31, 2018, $5,759 of regular interest, $4,029 of original issue discount, and $59,958 of derivative liability note discount was recognized as interest expense.

Convertible Note, $157,500 with 9% Interest Rate, First Note (“First Note Ba” and “Back End Note Bb”).

On July 19, 2018, IronClad entered into a Securities Purchase Agreement (SPA) to issue a 9% convertible note payable for an aggregate principal amount of $315,000 comprised of the first note ( “First Note Ba”) being in the amount of $157,500, and the remaining note in the amount of $157,500, (the “Back End Note Bb”). The Company received cash proceeds of $142,500 from the First Note Ba net of transaction costs of $15,000 that included $7,500 for attorneys’ fees.

The First Note Ba matured on July 19, 2019 and interest costs accrued on the unpaid principal balance at 9% annually until July 19, 2019, and after that if not paid at maturity interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid. The Back-End Note Bb carries the same terms as the First Note Ba, except it may not be repaid in cash, but only converted.

The Company accepted the Back End Note Bb on March 19, 2019. As part of the SPA, the holder issued the Company a collateralized secured promissory note in the amount of $150,000 that was exchanged for cash against the Back-End Note Bb (discussed separately several pages below).

The holder of the note, at its sole election, could convert the note into shares of common stock of the Company at any time during the period beginning on the date which is 180 days following the date of the note (dated July 19, 2018) and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any. The shares to be issued are a function of a fixed conversion price of $1.00 per share for six months, and thereafter until maturity at a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen-day trading period ending on the last trading day prior to exercising the conversion right. From January 24, 2019 thru April 1, 2019 the holder of the note elected to convert $157,500 of principal into 19,011,529 shares of Class A common stock.

The dates, shares issued and principal amounts repaid at each conversion event are as follows:

Conversion Date	Principal Outstanding	Principal Reduction	Shares Issued	Exercise Price
12/31/2018	$ 157,500
01/24/2019	$ 147,500	$ (10,000)	80,972	$ 0.1235000
02/04/2019	$ 132,500	$ (15,000)	769,231	$ 0.0195000
02/07/2019	$ 115,000	$ (17,500)	897,436	$ 0.0195000
02/20/2019	$ 90,000	$ (25,000)	1,282,051	$ 0.0195000
02/27/2019	$ 75,000	$ (15,000)	1,357,466	$ 0.0110500
03/07/2019	$ 60,000	$ (15,000)	1,923,077	$ 0.0078000
03/13/2019	$ 45,000	$ (15,000)	2,667,852	$ 0.0056225
03/25/2019	$ 35,000	$ (10,000)	2,229,654	$ 0.0448500
03/26/2019	$ 20,937	$ (14,063)	3,135,563	$ 0.0044850
03/29/2019	$ 1,000	$ (19,937)	4,445,262	$ 0.0044850
04/01/2019	$ -	$ (1,000)	222,965	$ 0.0044850

Derivative Liability. The valuation of the derivative liability related to the $157,500 borrowing on the First Note Ba and with an intrinsic value of $0.5482 per share was approximately $295,227 using a binomial pricing model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $142,500 ($157,500 net of $15,000) and was amortized as interest expense over the life of the loan. The remaining $152,727 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $(291*) of (negative*) regular interest, $0 of original issue discount, and $0 of derivative liability note discount was recognized as interest expense on the First note. During the nine-month period ended December 31, 2018, $6,408 of regular interest and $6,781 of original issue discount was recognized as interest expense, and $64,418 of derivative liability note discount was recognized as interest expense.

Convertible Note, $107,000 “a” with 10% Interest Rate (unrelated to similar loaned amount below).

On October 24, 2018, IronClad entered into a Securities Purchase Agreement to issue a 10% convertible note payable for an aggregate principal amount of $107,000. The Company received cash proceeds of $102,000 net of transaction costs of $5,000. The $5,000 was recorded as a discount amount on the note payable and will be amortized as interest expenses over the life of the note. The note matures on October 24, 2019 and interest costs accrue on the unpaid principal balance at 10% annually until October 24, 2019, and after that if not paid at maturity interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid.

The holder of the note is entitled, at any time after cash payment, to convert all or any amount of the principal face amount of the note then outstanding into shares of the Company's common stock. The shares to be issued upon conversion are a function of a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen day trading period ending on the last trading day prior to the conversion date. The Company kept available authorized shares reserved, initially 2,993,000 shares. From April 17, 2019 thru May 16, 2019 the holder of the note elected to convert $107,000 of principal into 23,378,328 shares of Class A common stock.

The dates, shares issued and principal amounts repaid at each conversion event are as follows:

Conversion Date	Principal Outstanding	Principal Reduction	Shares Issued	Exercise Price
12/31/2018	$ 107,000
04/17/2019	$ 79,000	$ (28,000)	6,526,807	$ 0.004290
04/30/2019	$ 47,000	$ (32,000)	7,032,967	$ 0.004550
05/03/2019	$ 12,500	$ (34,500)	7,582,418	$ 0.004550
05/16/2019	$ -	$ (12,500)	2,236,136	$ 0.005589

Derivative Liability. The valuation of the derivative liability related to the $107,000 borrowing with an intrinsic value of $0.1759 per share was approximately $131,617 using a binomial pricing model. That amount is recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $102,000 ($107,000 net of $5,000) and was amortized as interest expense over the life of the loan. The remaining $29,617 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $816 of regular interest, $2,836 of original issue discount, and $57,847 of derivative liability note discount was recognized as interest expense. During the nine-month period ended December 31, 2018, $1,993 of regular interest, $914 of original issue discount, and $19,003 of derivative liability note discount was recognized as interest expense.

Convertible Note, $181,170 with 12% Interest Rate.

On October 26, 2018, IronClad entered into a Securities Purchase Agreement to issue a 12% convertible note payable for an aggregate principal amount of $181,170. The Company received cash proceeds of $150,346 net of transaction costs of $30,824. The $30,824 is recorded as a discount amount on the note payable and was amortized as interest expenses over the life of the note. The note matured on July 26, 2019 and interest costs accrue on the unpaid principal balance at 12% annually until July 26, 2019, and after that if not paid at maturity interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid.

The holder shall have the right at any time following the 180th calendar day after the issue date (October 26, 2018), and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any, to convert all or any amount of the principal face amount of the note then outstanding into shares of the Company's common stock.

The shares to be issued upon conversion are a function of a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen day trading period ending on the last trading day prior to the conversion date. From May 7, 2019 thru June 10, 2019 the holder of the note elected to convert $33,342 of principal into 19,011,529 shares of Class A common stock.

The dates, shares issued, and principal amounts repaid at each conversion event are as follows:

Conversion Date	Principal Outstanding	Principal Reduction	Shares Issued	Exercise Price
12/31/2018	$ 181,170
04/17/2019	$ 168,261	$ (12,909)	4,361,220	$ 0.00296
06/10/2019	$ 147,828	$ (20,433)	8,374,250	$ 0.00244
08/10/2019	$ 141,083	$ (6,744)	6,075,8566	$ 0.00111
10/16/2019	$ 135,169	$ (5,915)	14,081,976	$ 0.00042
10/22/2019	$ 129,045	$ (6,123)	14,579,310	$ 0.00042
10/31/2019	$ 126,342	$ (2,704)	18,025,733	$ 0.00015
11/11/2019	$ 125,988	$ (353)	11,780,000	$ 0.00003
11/13/2019	$ 124,080	$ (1,908)	47,698,000	$ 0.00004
11/18/2019	$ 122,286	$ (1,794)	44,857,750	$ 0.00004

The Company will keep available authorized shares reserved, initially 6,500,000 shares. In connection with the issuance of the note, the Company issued a common stock purchase warrant to the holder to purchase up to 30,195 shares of the Company’s common stock at an exercise price of $3.00 per share with an exercise period of five years. The warrants were valued at $10,265 using a Black Scholes option pricing model and were recorded as a financing expense.

Warrants and “Down Round” Feature. The warrant included a down round feature that would reduce the exercise price of the warrant, if the Company sold or granted any option to purchase, or sell or grant any right to reprice, or otherwise disposed of or issued common stock or securities entitling any person or entity to acquire shares of common stock (upon conversion, exercise or otherwise) at an effective price per share less than the then exercise price.

During the year ended March 31, 2019, there were multiple events that triggered the down round provision, the cumulative effect reduced the exercise price to $0.004485 and the number of warrants exercisable was increased to 20,197,324. As a result, the valuation of the warrants increased to $123,067 and a reduction to retained earnings was recorded for the difference, similar to a dividend, in the amount of $112,587.

During the three-month period ended June 30, 2019, there were also multiple events that caused the down round feature to be triggered again. The cumulative effect reduced the exercise price to $0.0024 and the number of warrants exercisable was increased to 37,743,750. As a result, the valuation of the warrants increased to $201,663 and a reduction to retained earnings was recorded for the difference, similar to a dividend, in the amount of $78,596. During the three-month period ended December 31, 2019, revaluations of the down round feature caused a further reduction of $316,856 in retained earnings in the form of a constructive ‘dividend’ for accounting purposes.

Derivative Liability. The valuation of the derivative liability related to the $181,170 borrowing with an intrinsic value of $0.2674 per share is approximately $220,204 using a binomial pricing model. That amount is recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $150,346 ($181,170 net of $30,824) and was amortized as interest expense over the life of the loan. The remaining $69,858 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $20,782 of regular interest, $13,210 of original issue discount, and $64,434 of derivative liability note discount was recognized as interest expense. During the nine-month period ended December 31, 2018, $3,986 of regular interest and $7,452 of original issue discount amortization and 36,348 of derivative liability amortization was recognized as interest expense.

Convertible Note, $107,000 “b” with 10% Interest Rate (unrelated to similar loaned amount above).

On February 14, 2019, IronClad entered into a Securities Purchase Agreement to issue a 10% convertible note payable for an aggregate principal amount of $107,000. The Company received cash proceeds of $102,000 net of transaction costs of $5,000. The $5,000 was recorded as a discount amount on the note payable and will be amortized as interest expenses over the life of the note. The note matures on February 14, 2020 and interest costs accrue on the unpaid principal balance at 10% annually until February 14, 2020, and after that if not paid at maturity interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid.

The holder of the note is entitled, at any time after cash payment, to convert all or any amount of the principal face amount of the note then outstanding into shares of the Company’s common stock. The shares to be issued upon conversion are a function of a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen day trading period including the day upon which the notice of conversion is received conversion date. The Company will keep available authorized shares reserved, initially 11,551,000 shares. During the three-month period ended December 31, 2019, the holder of the note converted $91,700 of principal and $6,262 of accrued interest into 195,151,813 shares of Class A common stock.

Derivative Liability. The valuation of the derivative liability related to the $107,000 borrowing with an intrinsic value of $0.03099 per share was approximately $169,554 using a binomial pricing model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $102,000 ($107,000 net of $5,000) and will be amortized as interest expense over the life of the loan. The remaining $67,554 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $6,284 of regular interest, $3,767 of original issue discount, and $76,849 of derivative liability note discount was recognized as interest expense. There was no corresponding expense during the nine-month period ended December 31, 2018.

Convertible Note, $57,500 with 12% Interest Rate.

On February 14, 2019, IronClad entered into a Securities Purchase Agreement to issue a 12% convertible note payable for an aggregate principal amount of $57,500. The Company received cash proceeds of $52,500 net of transaction costs of $7,750. The $7,750 was recorded as a discount amount on the note payable and will be amortized as interest expenses over the life of the note.

The note matures on February 14, 2020. Interest costs accrue on the unpaid principal balance at 12% annually until maturity, and after that if not paid, interest accrues annually at 18% until any unpaid principal amount and unpaid interest accrued are paid.

The holder of the note, at its sole election, may convert the note into shares of common stock of Company the six month anniversary of the note, the conversion price shall be equal to 65% of the lowest trading price for the fifteen prior trading days including the day upon which a notice of conversion is received. During the three-month period ended December 31, 2019, the holder of the note converted $63,365 of principal and $2,500 of financing fees into 96,980,000 shares of Class A common stock.

Derivative Liability. The conversion feature of the note represents an embedded derivative. The valuation of the derivative liability related to the $57,750 borrowing on the Convertible Note and with an intrinsic value of $.039 per share was approximately $115,500 using a binomial pricing model. That amount is recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded is $50,000 ($57,750 net of $7,750) and will be amortized as interest expense over the life of the loan. The remaining $65,500 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $8,159 of regular interest, $5,839 of original issue discount, and $37,671 of derivative liability note discount was recognized as interest expense. There was no corresponding expense during the nine-month period ended December 31, 2018.

Event of Default. On October 1, 2019 a default event occurred that triggered an increase in principal of $28,875.

Convertible Note, $157,500 with 9% Interest Rate, Back End Note Bb (related to First Note Ba discussed several paragraphs above).

The Back-End Note Bb was accepted on March 14, 2019 and matured on July 19, 2019. Interest costs accrued on the unpaid principal balance at 9% annually until July 19, 2019, and after that if not paid at maturity interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid. The Back-End Note Bb carries the same terms as the First Note Ba, except it may not be repaid in cash, but only by converting to common stock.

The holder of the note, at its sole election, may convert the note into shares of common stock of the Company at any time during the period beginning on the date which is 180 days following the date of the note (dated March 14, 2019) and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any.

The shares to be issued are a function of a fixed conversion price of $1.00 per share for six months, and thereafter until maturity at a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen-day trading period ending on the last trading day prior to exercising the conversion right. During the three-month period ended December 31, 2019, the holder of the note converted $45,269 of principal into 567,384,999 shares of Class A common stock.

Derivative Liability. The valuation of the derivative liability related to the $157,500 borrowing on the Back-End Note Bb and with an intrinsic value of $0.0096 per share was approximately $352,448 using a binomial pricing model. That amount is recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $142,500 ($157,500 net of $15,000) and was amortized as interest expense over the life of the loan. The remaining $209,948 was expensed as financing fees as of the inception date of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $19,932 of regular interest, $12,992 of original issue discount, and $123,425 of derivative liability note discount was recognized as interest expense. on the Back-End Note Bb. There was no corresponding expense during the nine-month period ended December 31, 2018.

Convertible Note, $86,250 with 12% Interest Rate, First Note Ca (“First Note Ca” and “Back End Cb” and Collateralized Notes).

On March 28, 2019, IronClad entered into a Securities Purchase Agreement (SPA) to issue a 12% convertible note payable for an aggregate principal amount of $172,500 comprised of the first note (“First Note Ca”) being in the amount of $86,250, and the remaining note in the amount of $86,250 (the “Back End Note Cb”). The Company received cash proceeds of $75,000 from the First Note Ca net of transaction costs of $11,250 that included $3,750 for attorneys’ fees.

The First Note Ca matures on March 28, 2020 and interest costs accrue on the unpaid principal balance at 12% annually until March 28, 2020, and after that if not paid at maturity interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid. The Back-End Note Cb carries the same terms as the First Note Ca, except it may not be repaid in cash, but only by a conversion to Class A common stock. As part of the SPA, the holder issued the Company a collateralized secured promissory note in the amount of $78,750 that may be exchanged for cash against the Back-End Note Cb.

The holder of the note, at its sole election, may convert the note into shares of common stock of the Company at any time during the period beginning on the date which is 180 days following the date of the note (dated March 28, 2019) and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any.

The shares to be issued are a function of a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen-day trading period ending on the last trading day prior to exercising the conversion right. The Company will keep available authorized shares reserved, initially 130,000,000 shares. During the three-month period ended December 31, 2019, the holder of the note converted $32,600 of principal and $2,181of accrued interest into 69,802,132 shares of Class A common stock.

Derivative Liability. The valuation of the derivative liability related to the $86,250 borrowing with an intrinsic value of $0.009 per share is approximately $112,500 using a binomial pricing model. That amount is recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded is $75,000 ($86,250 net of $11,250) and was amortized as interest expense over the life of the loan. The remaining $37,500 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $7,166 of regular interest, $8,453 of original issue discount, and $56,352 of derivative liability note discount was recognized as interest expense. There was no corresponding expense during the nine-month period ended December 31, 2018.

Notes Payable Funded in Nine-month Period ended December 31, 2019

Convertible Note, $43,200 with 8% Interest Rate, First Note (“First Note Da”; and “Back End Note Db”, and Collateralized Notes).

On April 12, 2019, IronClad entered into a Securities Purchase Agreement (SPA) to issue an 8% convertible note payable for an aggregate principal amount of $86,400 comprised of the first note (“First Note Da”) being in the amount of $43,200, and the remaining note in the amount of $43,200, (the “Back End Note Db”). The Company received cash proceeds of $38,000 from the First Note Da net of transaction costs of $5,200. The $5,200 is recorded as a discount amount on the note payable and will be amortized as interest expenses over the life of the note.

The First Note Da matures on April 12, 2020 and interest costs accrue on the unpaid principal balance at 8% annually until February 14, 2020, and after that if not paid at maturity interest accrues annually at 24% until the principal amount and all interest accrued and unpaid are paid.

The Back-End Db Note carries the same terms as the First Note Da, except it may not be repaid, but only converted. The Company is under no obligation to accept the Back-End Note Db, but may do so at its sole discretion, following 180 days from the date of the note (dated April 12, 2019). As part of the SPA, the holder issued the Company a collateralized secured promissory note in the amount of $40,000 that may be exchanged for cash against the Back-End Note Db. The Back-End Note Db was not consummated and not funded.

The holder of the note, at its sole election, may convert the note into shares of common stock of the Company at any time during the period beginning on the date which is 180 days following the date of the note (dated July 11, 2018) and ending on the later of i) the maturity date, or ii) the date of payment of a default amount, if any.

The shares to be issued are a function of a fixed conversion price of $0.50 per share for six months, and thereafter until maturity at a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen day trading period ending on the last trading day prior to the conversion date. The Company will keep available authorized shares reserved, initially 2,100,000 shares. During the three-month period ended December 31, 2019, the holder of the note converted $43,200 of principal and $1,899 of accrued interest into 292,901,855 shares of Class A common stock, effectively retiring the note.

Derivative Liability. The conversion feature of the note represents an embedded derivative. The valuation of the derivative liability related to the $43,200 borrowing with an intrinsic value of $.0076 per share is approximately $76,531 using a binomial pricing model. That amount is recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded is $38,000 ($43,200 net of $5,200) and will be amortized as interest expense over the life of the loan. The remaining $38,531 is expensed as a loss on the issuance of the note during the three-month period ended June 30, 2019.

Interest Expense. During the nine-month period ended December 31, 2019, $1,899 of regular interest, $5,200 of original issue discount, and $38,000 of derivative liability note discount was recognized as interest expense. There was no corresponding expense during the nine-month period ended December 31, 2018.

Convertible Note, $57,750 with 12% Interest Rate.

On April 23, 2019, IronClad entered into a Securities Purchase Agreement to issue a 12% convertible note payable for an aggregate principal amount of $57,750. The Company received cash proceeds of $50,000 net of transaction costs of $7,750. The $7,750 is recorded as a discount amount on the note payable and will be amortized as interest expenses over the life of the note.

The note matures on April 23, 2020. Interest costs accrue on the unpaid principal balance at 12% annually until maturity, and after that if not paid, interest accrues annually at 18% until any unpaid principal amount and unpaid interest accrued are paid.

The holder of the note, at its sole election, may convert the note into shares of common stock of the Company after the six month anniversary of the note; the conversion price shall be equal to 65% of the lowest trading price for the fifteen prior trading days including the day upon which a notice of conversion is received. During the three-month period ended December 31, 2019, the holder of the note converted $18,474 of principal and $2,500 of financing fees into 251,160,000 shares of Class A common stock.

Derivative Liability. The conversion feature of the note represents an embedded derivative. The valuation of the derivative liability related to the $57,750 borrowing on the Convertible Note and with an intrinsic value of $.025 per share is approximately $317,308 using a binomial pricing model. That amount is recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded is $50,000 ($57,750 net of $7,750) and will be amortized as interest expense over the life of the loan. The remaining $267,308 is expensed as a loss on the issuance of the note during the three-month period ended June 30, 2019.

Interest Expense. During the nine-month period ended December 31, 2019, $4,471 of regular interest, $5,315 of original issue discount, and $34,290 of derivative liability note discount was recognized as interest expense. There was no corresponding expense during the nine-month period ended December 31, 2018.

Convertible Note, $150,000 with 10% Interest Rate.

On May 15, 2019, IronClad entered into a Securities Purchase Agreement to issue a 10% convertible note payable for an aggregate principal amount of $150,000. The Company received cash proceeds of $142,500 net of transaction costs of $7,500. The $7,500 is recorded as a discount amount on the note payable and will be amortized as interest expenses over the life of the note. The note matures on May 15, 2020 and interest costs accrue on the unpaid principal balance at 10% annually until May 15, 2020, and after that if not paid at maturity interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid.

The holder of the note is entitled, at any time after cash payment, to convert all or any amount of the principal face amount of the note then outstanding into shares of the Company's common stock.

The shares to be issued upon conversion are a function of a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen day trading period including the day upon which the notice of conversion is received conversion date. The Company will keep available authorized shares reserved, initially 61,538,000 shares. During the three-month period ended December 31, 2019, the holder of the note converted $16,400 of principal and $944 of accrued interest into 266,829,385 shares of Class A common stock.

Derivative Liability. The valuation of the derivative liability related to the $150,000 borrowing with an intrinsic value of $0.0152 per share is approximately $407,871 using a binomial pricing model. That amount is recorded as a contra-note payable amount (similar to the transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded is $142,500 ($150,000 net of $7,500) and will be amortized as interest expense over the life of the loan. The remaining $265,371 is expensed as a loss on the issuance of the note during the three-month period ended June 30, 2019.

Interest Expense. During the nine-month period ended December 31, 2019, $9,493 of regular interest, $4,713 of original issue discount, and $89,549 of derivative liability note discount was recognized as interest expense. There was no corresponding expense during the nine-month period ended December 31, 2018.

New Notes Payable Funded in Three-month Period Ended December 31, 2019

Convertible Note, $84,500 with 8% Interest Rate.

On October 1, 2019, IronClad entered into a Securities Purchase Agreement to issue an 8% convertible note payable for an aggregate principal amount of $84,500. The Company received cash proceeds of $76,000 net of an original issue discount of $4,000 and transaction costs of $4,500. The $8,500 is recorded as a discount amount on the note payable and will be amortized as interest expenses over the life of the note. The note matures on October 1, 2020 and interest costs accrue on the unpaid principal balance at 8% annually until October 1, 2020, and after that, if not paid at maturity, interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid.

The holder of the note is entitled, at any time after 180 days following the issue date, to convert all or any amount of the principal face amount of the note payable then outstanding into shares of the Company's Class A common stock. The shares to be issued upon conversion are a function of a variable conversion price which is 66% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen day trading period ending on the last trading day including the conversion date. The Company will keep available authorized shares reserved of 400% of the conversion amount, initially 113,804,000 shares.

Derivative Liability. The valuation of the derivative liability related to the $84,500 borrowing with an intrinsic value of $0.0047 per share was approximately $150,436 using a binomial pricing model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $76,000 ($84,500 net of $8,500) and will be amortized as interest expense over the life of the loan. The remaining $74,436 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $1,685 of regular interest, $2,113 of original issue discount and transaction cost amortization, and $18,896 of derivative liability note discount amortization were recognized as interest expense. There was no corresponding expense during the nine-month period ended December 31, 2018.

Convertible Note, $150,000 with 10% Interest Rate.

On October 31, 2019, IronClad entered into a Securities Purchase Agreement to issue a 10% convertible note payable for an aggregate principal amount of $150,000. The Company received cash proceeds of $142,500 net of transaction costs of $7,500. The $7,500 is recorded as a discount amount on the note payable and will be amortized as interest expenses over the life of the note. The note matures on October 31, 2020 and interest costs accrue on the unpaid principal balance at 10% annually until October 31, 2020, and after that if not paid at maturity interest accrues annually at up to 24% until the principal amount and all interest accrued and unpaid are paid.

The holder of the note is entitled, at any time after 180 days following the issue date, to convert all or any amount of the principal face amount of the note then outstanding into shares of the Company's Class A common stock. The shares to be issued upon conversion are a function of a variable conversion price which is 65% of a market price defined to be the lowest trading price for the Company’s common stock during the fifteen day trading period ending on the last trading day including the conversion date. The Company will keep available authorized shares reserved of 400% of the conversion amount, initially 400,000,000 shares.

Derivative Liability. The valuation of the derivative liability related to the $84,500 borrowing with an intrinsic value of $0.0008 per share was approximately $307,692 using a binomial pricing model. That amount was recorded as a contra-note payable amount (similar to the recorded OID and transaction costs), but only for an amount not in excess of and thus capped by the otherwise undiscounted amount of the note payable. The amount of the derivative liability note discount formally recorded was $142,500 ($150,000 net of $7,500) and will be amortized as interest expense over the life of the loan. The remaining $165,192 was expensed as financing fees at the inception of the note.

Interest Expense. During the nine-month period ended December 31, 2019, $2,542 of regular interest, $1,250 of original issue discount amortization, and $23,750 of derivative liability note discount amortization were recognized as interest expense. There was no corresponding expense during the nine-month period ended December 31, 2018.

Changes in Derivative Liabilities for Periods Ended December 31, 2019

The Company’s embedded conversion options are accounted for at Level 3 Fair Values. The following table shows the change in fair value of the derivative liabilities for the periods ended December 31, 2019 and 2018:

Derivative Liabilities Measured at Fair Value (Level 3)	Amount	Amount

Balance as of March 31, 2019 and 2018, respectively	$ 2,147,415	$ 234,138

Issuances	1,259,838	2,118,246
Redemptions/Conversions	(1,571,817)	(1,773,987)
Revaluation (gain) loss	(918,396)	1,569,018
Net change	(1,230,375)	1,913,277

Balance as of December 31, and March 31, 2019, respectively	$ 917,041	$ 2,147,415

IRONCLAD ENCRYPTION Corp 10-Q