|6 Months Ended|
Sep. 30, 2019
|NOTE 6 - CONVERTIBLE NOTES||
Convertible notes payable consisted of the following:
During the six months ended September 30, 2019, the Company issued separate Convertible Promissory Notes (“Notes”) having a total principal amount of $349,939 to accredited holders at an interest rates ranging from 0% to 1% per month. The note holder, at their sole discretion and election, are allowed to convert any part or all of the then outstanding principal and/or interest on these Notes into shares of common stock of the Company at conversion prices ranging from $0.65 to $1.00 per share. As of September 30, 2019, $100,000 of the Notes were converted, but the shares were not yet issued, and as such, were reflected as “Common stock to be issued” on the condensed statement of stockholders’ equity. As such, balance of the notes at September 30, 2019 was $249,939.
Certain of the Notes were issued when the market price of the Company’s common stock was in excess of conversion price per share creating a beneficial conversion feature associated with these Notes with an aggregate amount of $71,381 at issuance dates. As such, the Company recorded the $71,381 intrinsic value of the beneficial conversion feature at issuance dates of the Notes as additional paid-in capital and recognized as a debt discount. The debt discount is being amortized as interest expense over the terms of the related notes. During the six-month period ended September 30, 2019, the Company recorded amortization of the debt discount of $34,279 as interest expense. As such, unamortized debt discount as of September 30, 2019 related to these Notes was $37,102.
12% Senior Convertible Promissory Note
On September 4, 2019, the Company entered into a Senior Convertible Promissory Note due September 12, 2020 (the “Note”) in the principal amount of $500,000, of which an initial tranche of $250,000 was received on September 9, 2019, to an accredited investor (the “Purchaser”). The maturity date for each tranche funded (each, a “Maturity Date”) under the Note shall be twelve (12) months from the effective date of the payment of the respective tranche, less any amounts converted or redeemed prior to the Maturity Date. As such, the initial tranche matures on September 8, 2020. The Note accrues interest at a rate of 12% per annum, payable on the Maturity Date or upon any conversion, prepayment, event of default or other acceleration of payment under the Note. All interest payments under the Note are payable, at the Company’s option, in cash or shares of Common Stock.
All principal and interest due and owing under the Note is convertible into shares of Common Stock at any time at the election of the Purchaser at a conversion price per share equal to the lower of (i) $1.00 (the “Fixed Conversion Price”) or (ii) 70% multiplied by the average of the three (3) lowest closing prices of the Common Stock during the fifteen (15) consecutive trading-day period immediately preceding the date of the respective conversion (the “Alternate Conversion Price”) (the “Conversion Price”), which Conversion Price is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. The Purchaser will have participation rights in subsequent rights offerings and pro rata distributions. However, the Purchaser does not have the right to convert the Note to the extent that such conversion would result in such Purchaser being the beneficial owner in excess of 4.99% (or, upon election of such Purchaser, 9.99%), which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.
In the event the Company has a DTC “Chill” on the Company’s shares, an additional discount of 10% shall apply to the Conversion Price while that “Chill” is in effect. The Alternate Conversion Price shall be subject to a floor price of $0.25 per share (the “Floor Price”) provided, however, that the Floor Price shall no longer apply (1) after August 1, 2020, (2) if certain events of default occurs under the Note, and/or (3) the Company fails to pay an amount in cash to the Purchaser equal to 125% multiplied by the respective conversion amount with respect to any notice of conversion as provided in the Note.
The Company may prepay in cash any portion of the outstanding principal amount of the Note and any accrued and unpaid interest upon one (1) days’ written notice to the Purchaser, at any time prior to or as of (but not following) the earlier of the (i) the first conversion date under the Note for the respective tranche under the Note and (ii) the 180th calendar day after the funding date of the respective tranche under the Note. If the Company exercises its right to prepay any respective tranche under the Note at any time within the initial 180 calendar days following the funding date of the respective tranche under the Note, the Company will be required to pay a premium amount above the related principal amount ranging from 10% to 25% depending on when the prepayment notice is provided to the Purchaser.
In connection with the offer and sale of the Note, the Company and the Purchaser entered into a Security Agreement, dated as of September 4, 2019 (the “Security Agreement”). Under the Security Agreement, the Company granted a security interest in all of their respective assets, rights, interests and after-acquired assets and properties, except for the Company’s ownership interest in its subsidiary, Trace Analytics, Inc., as collateral for repayment of the principal and interest owed under the Note.
Also in connection with the offer and sale of the Note, the Company entered into a Registration Rights Agreement, dated September 4, 2019, with the Purchaser (the “Registration Rights Agreement”). Under the Registration Rights Agreement, the Company is obligated to register all shares of common stock underlying the Note resale in a registration statement to be filed with the Securities and Exchange Commission if the company files with the Securities and Exchange Commission a registration statement registering any securities, except a registration statement filed (i) in connection with any employee stock option or other benefit plan on Form S-8, (ii) for a dividend reinvestment plan or (iii) in connection with a merger or acquisition.
The Company considered the FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes was not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features of the Note was not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Note, the initial fair value of the embedded conversion feature was $199,081. As such, the Company recorded a $199,081 derivative liability which was recorded as debt discount offsetting the fair value of the Note (see Note 7). During the six months ended September 30, 2019, the Company amortized $14,181 of the debt discount to interest expense. The balance of the unamortized discount was $184,900 at September 30, 2019.