Convertible Notes Payable

12 Months Ended

Dec. 31, 2021

Note 9. Convertible Notes Payable

Debt to Equity Exchange Program

In the period from June 2017 through the end of December 2019, the Company entered eight Convertible Note Holder agreements with eight Note Holders totaling, with all fees, interest, and principal, $2,008,812 as of December 31, 2020. The notes were not considered to be in default and were being renegotiated at March 31, 2021. Subsequently, as of May 31, 2021, each Convertible Noteholder received their fees, interest, and principal totaling $2,107,414 in shares of Common stock of the Company (at $0.030 per share) with 50% warrant coverage (1 year cash warrant with a strike price of 0.30). All documents were executed by June 30, 2021 with all equity/warrants issued by July 31, 2021. The Company issued 7,036,668 Common shares, and 3,576,733 Warrant shares in this transaction.

2021 Convertible Notes

On September 20, 2021, the Company entered into a convertible promissory note with GS Capital Partners, LLC. The note matures on September 20, 2022 and bears interest at 8% per year. The Company received proceeds of $197,000, after deduction of $20,000 of original issue discount and $3,000 of costs. In connection with this note, the Company has issued a warrant to purchase 1,466,666 shares of common stock to the lender. The warrant has an exercise price of $0.15 per share and expires on September 21, 2026. The relative fair value of the warrant was $110,000, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.84%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of the Company’s common stock of 389%; and (4) an expected life of 5 years. The note is convertible into shares of common stock at a fixed conversion price of $0.10 per share. The company has recorded a beneficial conversion feature of $90,000.

A total of $220,000 has been recorded as debt discount, and 3,000 has been recorded as deferred debt costs. The discount and costs will be amortized to interest expense over the term of the note, and $62,929 was amortized during the year ended December 31, 2021.

During the fourth quarter of 2021, the Company entered into twenty convertible promissory notes with various holders aggregating $1,412,000. The notes mature one year from issuance and bear interest at 8% per year. The Company received proceeds of $1,287,000, after deduction of $117,000 of original issue discount and $8,000 of costs. In connection with the notes, the Company has issued warrants to purchase 10,463,332 shares of common stock to the lenders. The warrants have an exercise price of $0.15 per share and expire five years from the date of issuance. The relative fair value of the warrants was $1,366,127, determined using the Black Scholes Model with the following assumptions: (1) risk free interest rate of 0.84% - 1.33%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of the Company’s common stock of 386% - 389%; and (4) an expected life of 5 years. The notes are convertible into shares of common stock at a fixed conversion price of $0.10 per share.

A total of $1,295,000 has been recorded as debt discount, and 8,000 has been recorded as deferred debt costs. The discount and costs will be amortized to interest expense over the term of the notes, and $142,233 was amortized during the year ended December 31, 2021.

The Company’s convertible promissory notes at December 31, 2021 and 2020 are as follows:

	December 31, 2021			December 31, 2020
Convertible notes payable, bearing interest at 8- 10%	$	1,632,000		$	1,453,960
Unamortized debt discount		(1,428,726	)		-
Unamortized deferred debt issuance cost		(9,112	)		-
Total		194,162			1,453,960
Current portion	$	194,162		$	1,453,960

- 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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+ Details

DAIS Corp 10-K