Quarterly report pursuant to Section 13 or 15(d)

NOTES PAYABLE

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NOTES PAYABLE
3 Months Ended
Jun. 30, 2020
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NOTES PAYABLE

8.     NOTES PAYABLE

(a) Convertible Loans Payable

During the quarter ended June 30, 2020, the Company received $1,302,575, in addition to $70,000 previously loaned to the Company, pursuant to a $3,000,000 (later increased to $7,000,000) convertible note offering. The convertible notes bear interest at a fixed rate at 1% per month. The convertible loans will be convertible into equity of the Company upon the following events on the following terms:

(i)

On the Maturity Date, the outstanding principal and accrued and unpaid interest under the convertible note will be converted into shares of common stock at a conversion price of $8.55 per shares in the event of an investment on or prior to December  31, 2019, and $9.50 per share in the event of an investment after December  31, 2019 (the “Conversion Price”).

(ii)

Upon a change of control transaction prior to the Maturity Date, the outstanding principal and accrued and unpaid interest under the convertible notes would, at the election of the holders of a majority of the outstanding principal of the loans under the offering, be either (i) payable upon demand as of the closing of such change of control transaction or (ii) convertible into shares of the Company’s common stock immediately prior to such change of control transaction at a price per share equal to the lesser of (x) the Conversion Price or (y) the per share consideration to be received by the holders of the common stock in such change of control transaction.

In the event the Company raises capital through the sale of Common Stock for cash during the period ending on the three year anniversary of the issuance date of the convertible notes, and the price per share thereof (the “Offering Price”) minus 20% is less than the original Conversion Price, then in such event the Company shall issue to all convertible loan holder at, at no further cost, additional shares of common stock equal to the number of conversion shares the holders would have received upon conversion if the Conversion Price equaled to a 20% discount to the Offering Price, less the number of shares of conversion shares actually issued on or as of the Maturity Date. Since the Company has early adopted ASU 2017-11, the anti-dilution protection clause does not contribute to the conversion feature to be a derivative liability.

The interest accrued on these convertible loans for the period ended June 30, 2020 was $15,588 (March 31, 2020- $4,317).

(b) Short term loan

On March 23, 2020, the Company received a $2,000,000 loan from an existing shareholder. The promissory note bears interest at a fixed rate of 1% per month and has a maturity date of the earlier of (i) March 31, 2022 and (ii) the date of receipt of a minimum of US$5,000,000 from a “Subsequent Financing.” The accrued interest shall be payable one-half at the maturity date, and one-half on a quarterly basis as follows: (a) the quarterly interest payments shall be payable in cash commencing on the six month anniversary of the issue date (or the nine month anniversary of the issue date if as of such six month anniversary the World Health Organization (or a corresponding government or government agency) still categorizes or deems COVID-19 or the novel corona virus as a pandemic or outbreak) (the “First Interest Payment Date”), with the quarterly payments accruing for the first (or first two, as the case may be) interest payment dates nevertheless being payable, without further interest thereon, pro rata from the First Interest Payment Date through the maturity date. The loan is repayable or convertible to common shares at the loan holder’s option. Interest accrued on this loan at June 30, 2020 is $64,516(March 31, 2020- $4,516).

 

(c) PPP Loan

 

On May 1, 2020, the Company signed a Promissory Note for $459,912 pursuant to the federal Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act, which is administered by the U.S. Small Business Administration. The loan is unsecured, bears interest of 1% per annum and a deferment period of 6 months. The loan is to be used primarily for payroll related costs, lease and utility payments. The Company intends to apply for forgiveness for all or a portion of the loans in accordance with applicable law. If the loan is not forgiven, the Company will be obligated to repay the loan during the period of 2 years.