CONVERTIBLE PROMISSORY NOTES

9 Months Ended

Sep. 30, 2023

NOTE 11.

CONVERTIBLE PROMISSORY NOTES

Issuance of 1% Convertible Promissory Notes, due 2025 in 2020

On January 14, 2020, the Company entered into a Subscription Agreement with Tsang Wai Yee Terri (“the Subscriber”) under which the Subscriber agreed to purchase the 1% Senior Unsecured Convertible Note Agreement from the Company for an agreement purchase price of six hundred and forty-five thousand US Dollars ($645,000). On the same date, the Company signed the 1% Senior Unsecured Convertible Note Agreement under which the Company may sell and issue to the Subscriber up to an aggregate maximum amount of $645,000 in principal amount of Convertible Notes prior to January 13, 2025. The Convertible Promissory Notes issued to the Investor are convertible at the holder’s option into shares of Company common stock at $1.00 per share.

Issuance of 1% Convertible Promissory Notes, due 2027 in 2022

On January 18, 2022, the Company entered into a Subscription Agreement under which the Subscriber agreed to purchase the 1% Senior Unsecured Convertible Note Agreement from the Company for an agreement purchase price of two million five hundred thousand US Dollars ($2,500,000). On the same date, the Company signed the with 1% Senior Unsecured Convertible Note Agreement under which the Company may sell and issue to the Subscriber up to an aggregate maximum amount of $2,500,000 in principal amount of Convertible Notes prior to January 19, 2027. The Convertible Promissory Notes issued to the Investor are convertible at the holder’s option into shares of Company common stock at $1.25 per share.

The following table details the accounting treatment of the convertible promissory notes:


	1% Convertible Promissory Notes, due in 2025		1% Convertible Promissory Notes, due in 2027			Total
Net carrying value of convertible promissory notes as of December 31, 2021	$	645,000	$	-		$	645,000
Proceeds of 1% convertible promissory notes		-		2,500,000			2,500,000
Less: Allocated intrinsic value of beneficial conversion feature (Note a)		-		(400,000	)		(400,000	)
Add: Accumulated amortization of debt discount		-		72,485			72,485
Net carrying value of convertible promissory notes as of December 31, 2022 and January 31, 2023		645,000		2,172,485			2,817,485
Add: Amortization of debt discount		-		55,657			55,657
Net carrying value of convertible promissory notes as of September 30, 2023	$	645,000	$	2,228,142		$	2,873,142

Note:

(a)

At the time of issuance, the Company evaluated the intrinsic value of the beneficial conversion feature (“BCF”) associated with the conversion feature of the convertible promissory note. The BCF was recorded into additional paid-in capital. Additionally, the convertible promissory note was considered to have an embedded BCF because the effective conversion price was less than the fair value of the Company’s common stock on notes issuance date. The value of the BCF was recorded as a discount on the convertible promissory note. Hence, in connection with the issuance of the convertible promissory note, the Company recorded a total debt discount of $400,000 that will be amortized over the term of the Note using effective-interest rate method.

Amortization of debt discount

The following table details the amortization of debt discount:

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
1% convertible promissory notes, due in 2025	$	-	$	-	$	-	$	-
1% convertible promissory notes, due in 2027		18,685		17,862		55,657		54,398
Total	$	18,685	$	17,862	$	55,657	$	54,398

Interest Expense

The following table details the interest expenses:

Schedule of interest expenses
	For the Three Months Ended				For the Nine Months Ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
1% convertible promissory notes, due in 2025	$	1,626	$	1,626	$	4,824	$	4,824
1% convertible promissory notes, due in 2027		6,301		6,301		18,699		17,466
Total	$	7,927	$	7,927	$	23,523	$	22,290

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

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-Topic 470
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-Topic 470
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+ Details

NETWORK CN INC 10-Q