Annual report pursuant to Section 13 and 15(d)

Note 4 - Debentures and Notes Payable

v3.20.1
Note 4 - Debentures and Notes Payable
12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Debt Disclosure [Text Block]
Note
4
– Debentures and Notes Payable
 
Debentures and notes payable consists of the following:
 
   
December 31,
   
December 31,
 
   
2019
   
201
8
 
Notes and debentures payable:
 
 
 
 
 
 
 
 
6.30% Insurance premium finance agreement due July 2020
  $
39,138
    $
-
 
6.05% Insurance premium finance agreement due July 2019
   
-
     
31,089
 
4.75% Convertible debenture due September 2019
   
-
     
63,675
 
Total notes and debentures payable
 
$
39,138
   
$
94,764
 
                 
Notes payable - related party:
 
 
 
 
 
 
 
 
10% Promissory note due January 2024
  $
475,000
    $
-
 
Less:
               
Beneficial conversion feature
   
(273,422
)    
-
 
Warrants issued
   
(59,108
)    
-
 
Debt issue costs
   
(21,962
)    
-
 
Net
   
120,508
     
 
 
14% Term loan due December 2019
   
-
     
374,993
 
14% Term loan due December 2019
   
-
     
621,500
 
14% Term loan due December 2019
   
-
     
400,941
 
7% Convertible promissory note due December 2019, net
   
-
     
228,627
 
7% Convertible promissory note due December 2019, net
   
-
     
76,239
 
Total notes payable - related party
 
 
120,508
   
 
1,702,300
 
Less current maturities
   
-
     
(1,702,300
)
Long-term debt
 
$
120,508
    $
-
 
 
6.3
0
% Insurance premium finance
agreement
due
July 2020 
 
The Company entered into an insurance financing agreement in
September 2019
totaling
$61,503.
 The agreement was due in
eleven
installments of
$5,591
through
July 2020.
The Company made installment payments of
$22,365
during the year ended
December 31, 2019.
 
6.05%
Insurance premium finance agreement due
July 2019 
 
The Company entered into an insurance financing agreement in
2018
totaling
$48,855
 due
July 2019
and made payments of
$31,089
during the year ended
December 31, 2019.
 
4.75%
Convertible debenture due
September
2019
 
On
November 3, 2006,
the Company issued to Golden State a
4.75%
convertible debenture in a principal amount of
$100,000,
due
December 31, 2014,
subsequently extended to
December 31, 2018
and most recently extended to
September 30, 2019
and warrants to buy
61
post-split equivalent shares of common stock at a post-split exercise price of
$114,450
per share. On
January 8, 2018,
Golden State converted
$225
of the
4.75%
convertible debenture into
244,618
shares of common stock at
$0.0009
per share and exercised
0.2143
warrants at
$114,450
per share for
$24,525.
On
May 24, 2018,
Golden State converted
$225
of the
4.75%
convertible debenture into
396,635
shares of common stock at
$0.0006
per share and exercised
0.2143
warrants at
$114,450
per share and advanced
$23,766
cash for the exercise. On
October
15,2019,
the Company paid the balance due on the debenture of
$63,675
along with the accrued interest due of
$26,065.
 
Conversion of related party loans and convertible debentures to common stock
 
On
December 27, 2019,
the Company issued
123,330,807
shares of Common Stock of the Company upon the conversion of debt held by certain Legacy Holders, which consists substantially of the Company’s Co-Chairmen, Victor Keen and Simon Calton. The total outstanding Legacy Debt converted was
$2,711,359,
which consisted of
$2,017,435
in outstanding principal and
$693,924
in accrued interest. The Legacy Debt was converted at conversion prices of
$0.022
per share.
 
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 Notes 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
$281,837
was recorded, with a corresponding credit to additional paid-in capital for the beneficial conversion feature. The debt discount will be amortized over the life of the debt and
$8,415
was amortized during the year ended
December 31, 2019.
 
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 were 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. As of
December 31, 2019,
570,000
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
$60,593
during the year ended
December 31, 2019
and is being amortized over the life of the debt and
$1,485
was amortized during the year ended
December 31, 2019.
 
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
$22,767
during the year ended
December 31, 2019
and are being amortized over the life of the debt and
$805
was amortized during the year ended
December 31, 2019.
 
14%
Term loan due
December 2019,
related party
 
On
April 18, 2016,
the Company entered into an unsecured loan agreement whereby Carlton James Ltd ("CJL”), a company owned by Mr. Simon Calton, a director of the Company, agreed to provide the Company a loan facility of up to
$100,000.
Under the terms of the agreement, the Company accrued interest on the outstanding unpaid balance at the rate of
1.167%
per month. The interest was due quarterly, and the principal was due
September 30, 2019
and subsequently extended to
December 31, 2019.
CJL had advanced
$374,993
(
$274,993
in excess of the facility) on the loan as of
September 30, 2019.
During
2017,
CJL agreed that the excess amount funded and any future funding under the loan would be done on the same terms and conditions as the original note. The loan and accrued interest were a part of the Legacy Debt and effective
November 30, 2019,
the loan and accrued interest were retired
December 27, 2019.
 
14%
Term loan due
December 2019,
related party
 
On
February 24, 2016,
the Company entered into an unsecured loan agreement whereby Victor Keen, Co-Chairman of the Company (“Keen”) agreed to provide the Company a loan facility of up to
$300,000.
Under the terms of the agreement, the Company accrued interest on the outstanding unpaid balance at the rate of
1.167%
per month. The interest was due quarterly, and the principal was due
September 30, 2019
and subsequently extended to
December 31, 2019.
Keen had advanced
$756,500
(
$456,500
in excess of the facility) on the loan through
November 30, 2019.
During
2017,
Keen agreed that the excess amount funded and any future funding under the loan will be done on the same terms and conditions as the original note.   The loan and accrued interest were a part of the Legacy Debt and effective
November 30, 2019,
the loan and accrued interest were retired on
December 27, 2019.
 
14%
Term loan due
December 2019,
related party
 
On
June 1, 2015,
Coretec obtained a
$500,000
revolving note agreement with CJL. Coretec accrued the interest on the outstanding balance at the rate of
1.167%
per month. CJL had advanced
$535,941
on the loan (
$35,941
in excess of the facility) through
November 30, 2019.
During
2019,
CJL agreed that the excess amount funded and any future funding under the loan would be done on the same terms and conditions as the original note.  Outstanding borrowings were secured by substantially all assets of the Company. The note was due on
September 30, 2019
and subsequently extended to
December 31, 2019.
The loan and accrued interest were a part of the Legacy Debt and effective
November 30, 2019,
the note and accrued interest were retired on
December 27, 2019.
 
7%
Convertible promissory note due
December 2019,
related party 
 
On
March 30, 2017,
the Company issued to Mr. Victor Keen, Co-Chairman of the Board of Directors, a
7%
convertible promissory note in a principal amount of
$250,000,
due
March 1, 2019,
subsequently extended to
December 31, 2019.
The promissory note automatically converted into
eight
percent (
8%
) of the fully diluted outstanding shares of common stock of the Company. 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. The dollar amount of the beneficial conversion feature was limited to the carrying value of the promissory note, so a
$250,000
debt discount was recorded, with a corresponding credit to additional paid-in capital for the beneficial conversion feature. The debt discount was amortized over the original life of the debt and
$21,373
and
$130,440
was amortized during the year ended
December 31, 2019
and
2018
respectively. The note and accrued interest were a part of the Legacy Debt retired on
December 27, 2019.
 
7%
Convertible promissory note due
December 2019,
related party
 
On
June 21, 2017,
the Company issued to Mr. Victor Keen, Co-Chairman of the Board of Directors, a
7%
convertible promissory note in a principal amount of
$100,000,
due
June 21, 2019
and subsequently extended to
December 31, 2019.
The promissory note automatically converted into
four
percent (
4%
) of the fully diluted outstanding shares of common stock of the Company. 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. The dollar amount of the beneficial conversion feature is limited to the carrying value of the promissory note, so a
$100,000
debt discount was recorded, with a corresponding credit to additional paid-in capital for the beneficial conversion feature. The debt discount was amortized over the original life of the debt and
$23,761and
$50,004
was amortized during the years ended
December 31, 2019
and
2018
respectively.  The note and accrued interest were a part of the Legacy Debt retired
December 27, 2019.