Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Notes Payable

v3.20.2
Note 4 - Notes Payable
9 Months Ended
Sep. 30, 2020
Notes to Financial Statements  
Debt Disclosure [Text Block]
Note
4
– 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.
 
3.
8
% 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
 
On
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
(
16
) 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
12
months and thereafter principal and interest payments shall be paid monthly in equal amounts, amortized over a
36
-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
(
15
) 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
$1
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
3%
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.
 
On
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.