NOTE 10. NOTES PAYABLE

RELATED PARTIES

Related party notes payable consist of the following:

Total interest expense for related party notes was $385,889 and $3,847 for the three-month periods ended March 31, 2022 and 2021, respectively.

Related Party Convertible Notes Payable with Detached Free-Standing Warrants

The Company has thirteen convertible notes payable to related parties, each with detached free-standing warrants to purchase the Company’s common stock at $9 per share, that have a total principal balance of $1,000,000 as of March 31, 2022. The notes, secured by the Company’s patents and patents applications, include interest at 12%, are convertible at $9 per share of the Company’s common stock and are due 24 months after issuance. The note holders may elect to have the interest paid in cash monthly or have the interest accrue and be payable on the maturity date. Interest elected to be accrued will be paid in cash or may be converted into shares of our common stock under the same terms as the principal amount on the maturity date. The notes contain both voluntary and automatic conversion features. The notes will be convertible at any time, by the holders, beginning on the date of issuance. However, the holders may not convert any outstanding amounts due under the note if at the time of such conversion the amount of common stock issued for the conversion, when added to other shares of Company common stock owned by the holders or which can be acquired by holders upon exercise or conversion of any other instrument, would cause the holder to own more than 4.9% of the Company’s outstanding common stock.  Beginning on the issuance date, the outstanding principal amount of the note, and any accrued interest, will automatically convert into shares of the Company’s common stock if the Company’s common stock closes at or above $6 per share for five (5) consecutive trading days while listed on NASDAQ. The Company evaluated the convertible notes payable for embedded derivative and beneficial conversion features. The Company determined that there were beneficial conversion features to record. The total beneficial conversion feature debt discount of $448,999 is amortized over the life of the convertible notes payable. The debt discount amortization expense recorded as amortization of interest – beneficial conversion feature in the condensed consolidated statements of operations was $55,356 and $6,361 for the three-month periods ended March 31, 2022 and 2021, respectively. The unamortized beneficial conversion feature was $235,986 and $291,343 at March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022, these notes carry outstanding warrants of 166,667. The relative fair value of the related stock warrants granted during the three-month periods ended March 31, 2022 and March 31, 2021 was none and $287,781, respectively. Stock warrants amortization expense recorded as interest expense was $67,932 and $8,981 for the three-month periods ended March 31, 2022 and 2021, respectively. The unamortized discount at March 31, 2022 and December 31, 2021 is $286,274 and $354,205, respectively.

Conventional Non-convertible Notes Payable

The Company has one non-convertible note payable to a related party that has a principal balance of $11,810 as of March 31, 2022 and December 31, 2021. The note carries an interest rate at 0%.  The note payable had a due date of December 31, 2012 and is currently in default.

NON-RELATED PARTIES 

Non-related party notes payable consist of the following:

Total interest expense for non-related party notes was $129,009 and $5,141 for the three-month periods ended March 31, 2022 and 2021, respectively.

Convertible Notes Payable with Warrants

The Company has sixteen convertible notes payable to non-related parties, each with detached free-standing warrants to purchase the Company’s common stock at $9 per share, that have a total principal balance of $1,005,000 as of March 31, 2022 and December 31, 2021. The notes, secured by the Company’s patents and patents applications, include interest at 12%, are convertible at $9 per share of the Company’s common stock and are due 24 months after issuance.  The note holders may elect to have the interest paid in cash monthly or have the interest accrue and be payable on the maturity date.  Interest elected to be accrued will be paid in cash or may be converted into shares of our common stock under the same terms as the principal amount on the maturity date.  The notes contain both voluntary and automatic conversion features. The notes will be convertible at any time, by the holders, beginning on the date of issuance. However, the holders may not convert any outstanding amounts due under the note if at the time of such conversion the amount of common stock issued for the conversion, when added to other shares of Company common stock owned by the holders or which can be acquired by holders upon exercise or conversion of any other instrument, would cause the holder to own more than 4.9% of the Company’s outstanding common stock.  Beginning on the issuance date, the outstanding principal amount of the note, and any accrued interest, will automatically convert into shares of the Company’s common stock if the Company’s common stock closes at or above $6 per share for five (5) consecutive trading days while listed on NASDAQ. The Company evaluated the convertible notes payable for derivative embedded and beneficial conversion features. The Company determined that there were beneficial conversion features to record. The total beneficial conversion feature debt discount of $460,215 is amortized over the life of the convertible notes payable.  The debt discount recorded as amortization of interest – beneficial conversion feature in the consolidated statements of operations was $59,230 and $3,181 for the three-month periods ended March 31, 2022 and 2021.  As of March 31, 2022, these notes carry outstanding warrants of 167,500. The relative fair value of the related stock warrants granted during the three-month periods ended March 31, 2022 and 2021 was none and $541,707, respectively.  Stock warrants amortization expense recorded as interest expense was $69,780 and $4,491 for the three-month periods ended March 31, 2022 and 2021.  The unamortized discount at March 31, 2022 and December 31, 2021 was $281,646 and $351,425, respectively.

Convertible Notes Payable

The Company has two unsecured, convertible notes payable to non-related parties that have a principal balance of $9,183 as of March 31, 2022 and three convertible notes payable to non-related parties that have a principal balance of $56,683 as of December 31, 2021. These notes carry interest rates ranging from 5% - 12% and have due dates ranging from February 2013 to March 2022. Notes with principal balances of $9,183 are in default at March 31, 2022 and December 31, 2021. These notes carry a conversion price of $6.00 to $32.29 per share. On March 3, 2022 the Company authorized the issuance of 7,917 shares of common stock under the terms of a $47,500 convertible note payable issued March 6, 2020 with interest at 5%, due March 6, 2022 and convertible at $6.00 per share. The Company evaluated these convertible notes payable for embedded derivative and beneficial conversion features. The Company determined that there were beneficial conversion features to record. The beneficial conversion features were either fully amortized upon grant or over the life of the convertible notes payable.

Non-convertible Notes Payable

The Company has three unsecured, non-convertible notes payable to non-related parties that have a principal balance of $42,500 as of March 31, 2022, and December 31, 2021. These notes carry interest rates ranging from 5% - 10% and have due dates ranging from December 2013 to June 2022. Two of the three notes are currently in default. 

Notes Payable with Warrants

The Company has one unsecured, note payable with detached free-standing warrants to a non-related party that has a principal balance of $5,000 as of March 31, 2022 and December 31, 2021. This note carries an interest rate of 10% and had a due date of September 2014. This note is currently in default. The detached free-standing warrants for this note payable were not exercised by the note holder and expired in 2019.