Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Notes Payable

Note 4 - Notes Payable

9 Months Ended

Sep. 30, 2020

Note

– Notes Payable

	September 30,			December 31,
	2020			2019
Notes payable:
6.3% Insurance premium finance agreement due July 2020	$	-		$	39,138
3.8% Insurance premium finance agreement due June 2021		69,545			-

Notes payable - related party:
10% Promissory note due January 2024		1,175,000			475,000
Less:
Beneficial conversion feature		(773,317	)		(273,422	)
Warrants issued		(123,001	)		(59,108	)
Debt issue costs		(37,709	)		(21,962	)
Total notes payable - related party	$	240,973		$	120,508

6.3%

Insurance premium finance agreement, due

July 2020

The Company entered into an insurance financing agreement in

September 2019

totaling

$61,503.

The monthly payments under the agreement were due in

eleven

installments of

$5,591.

The Company fully paid off the note in the planned installments with the last payment in

July 2020.

% Insurance premium finance agreement, due

June 2021

The Company entered into an insurance financing agreement in

August 2020

totaling

$77,151.

The monthly payments under the agreement are due in

ten

installments of

$7,849.

The Company made the

first

installment payment in

September 2020.

10%

Promissory note due

January 2024,

net

October 4, 2019,

the Company entered into a Credit Agreement and related Promissory Note with DAF, the Lender. DAF is managed by Carlton James, Ltd, a UK-based company of which Simon Calton is the Chief Executive Officer. Mr. Calton is Co-Chairman of Coretec. The

10%

Promissory Note, in a principal amount of

$2,500,000,

is due

January 15, 2024

and has attached warrants to subscribe for and purchase

3,000,000

shares of common stock at an exercise price of

$0.052

per share. Under the terms of the Credit Agreement, DAF will fund the Promissory Note in

sixteen

(

) tranches in amounts of

$125,000

and

$175,000

per month beginning in

October 2019.

Interest is accrued monthly and paid in advance for the

first

months and thereafter principal and interest payments shall be paid monthly in equal amounts, amortized over a

-month period.

Under the terms of the Promissory Note, DAF has the right to elect to convert all or part of the Promissory Note at a price equal to

seventy

percent (

70%

) of the average closing price of the Company's common stock as reported on the over-the-counter quotation system on the OTC Markets during the

fifteen

(

) calendar days prior to the loan closing date of

October 4, 2019,

which calculates to

$0.0329

per share.

The embedded conversion option was deemed to be a beneficial conversion feature because the active conversion price was less than the commitment date market price of the common stock. Given the terms and related-party nature of the agreement, the commitment date was determined to be the date the funds are advanced to the Company and is limited to the funding value less other debt discounts (see below). A debt discount of

$737,437

and

$281,837

was recorded, with a corresponding credit to additional paid-in capital for the beneficial conversion feature for the

nine

months ended

September 30, 2020

and the year ended

December 31, 2019,

respectively. The debt discount will be amortized over the life of the debt and

$107,552

was amortized to interest expense during the

nine

months ended

September 30, 2020.

Under the terms of the DAF Credit Agreement, warrants to subscribe for and purchase

3,000,000

shares of common stock at an exercise price of

$0.052

per share are available to be issued to DAF. The warrants will be issued in amounts of

150,000

and

210,000

per month as the advance is received during the funding period. In the event that funding advances deviate from the planned schedule then warrants will be issued pro-rata at

1.2

warrants for every

of funding. As of

September 30, 2020,

1,770,000

warrants have been granted under the terms of the DAF Credit Agreement. The estimated value of the warrants granted monthly, with each advance, is calculated using the Black-Scholes option pricing model. The resulting estimated value of the warrant is used to proportionally allocate the fair value of the debt advance and the fair value of the warrants. The allocated cost of the warrants amounted to

$108,594

and

$60,593

during the

nine

months ended

September 30, 2020

and the year ended

December 31, 2019,

respectively, and is being amortized over the life of the debt.

$19,398

was amortized during the

nine

months ended

September 30, 2020.

Additionally, under the terms of the Credit Agreement, the Company agreed to pay a commitment fee of

of each advance and reimburse DAF for certain expenses in connection with the preparation, interpretation, performance and enforcement of the Credit Agreement. Those costs amounted to

$30,000

and

$22,767

for the

nine

months ended

September 30, 2020

and the year ended

December 31, 2019

and are being amortized over the life of the debt with

$6,080

being amortized during the

nine

months ended

September 30, 2020.

March 31, 2020,

under the terms of the Credit Agreement, DAF converted

$300,000

of the principle of the Promissory Note into

9,129,136

shares of common stock at

$0.0329

per share. A related charge of

$130,370

of the beneficial conversion feature was made to interest expense along with debt issue related charges of

$25,523

for the warrants and

$8,123

for the deferred cost at the time of the conversion.