NOTE 11 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable consists of the following:

The Company’s convertible notes are convertible, at the option of the holder, into shares of the Company’s common stock at the conversion prices shown above. Borrowings on the Company’s convertible notes bear interest at the annual rate of 12%, except as otherwise indicated below.

On December 6, 2019, the Company and the holder of the Company’s convertible note dated April 13, 2018 (the “April 2018 Note”) entered into an addendum to the underlying promissory note. Pursuant to the addendum, the parties extended the maturity date of the April 2018 Note to April 13, 2021. In addition, after giving effect to the addendum, the April 2018 Note is non-interest bearing. All other terms of the April 2018 Note remain unchanged. The Company recorded this transaction as an exchange of debt instruments with substantially different terms. In connection therewith, the Company recognized a gain on extinguishment of debt of $13,972. The new debt was recorded net of an initial unamortized debt discount of $13,972, which is being amortized over the term of the April 2018 Note, as amended.

In the fiscal year ended April 30, 2020 and 2019, interest expense associated with the Company’s convertible notes was $47,360 and $254,367, respectively. The Company also recognized amortization expense related to the debt discounts and deferred financing fees in the aggregate amount of $14,151 and $1,154,510 for the fiscal year ended April 30, 2020 and 2019, respectively. These amounts are included in interest expense in our consolidated statements of operations.

In November 2018, the holder of a convertible note in the principal amount of $15,000 converted $6,000 of outstanding principal into 1,200,000 shares of the Company’s common stock and, in April 2019, converted $9,000 of outstanding principal and $1,000 of accrued but unpaid interest into 2,000,000 shares of the Company’s common stock. In addition, in December 2019, the holder of a convertible promissory note converted $28,000 in accrued but unpaid interest into 2,800,000 shares of the Company’s common stock.

As of April 30, 2018, certain of the Company’s notes had a conversion price based on a discount (39%) from the lowest two (2) prices for the Company’s common shares during the fifteen (15) trading days prior to conversion. The Company determined that the conversion feature of certain notes outstanding met the definition of “liability” in accordance with ASC Topic No. 815, “Derivatives and Hedging - Contracts in Entity’s Own Stock” (“ASC 815”) and, accordingly, bifurcated the embedded conversion option once each note became convertible, and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and was amortized into interest expense over the term of each note. For this purpose, the Company valued the conversion feature using the Binomial option pricing valuation model. For notes issued during the period from inception (May 5, 2017) to April 30, 2018, the aggregate fair value of the derivative liability was $28,467,261. Of this amount, $1,199,000 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $27,268,261 was recognized as a “day 1” derivative loss.

During the fiscal year ended April 30, 2019, the Company repaid the convertible notes with a variable conversion rate, a conversion rate tied to the market price of the Company’s common stock. The remaining convertible notes and warrants outstanding have a fixed conversion rate and, accordingly, the number of shares issuable upon conversion is fixed. As a result of the repayment, the Company has recognized a decrease in its derivative liabilities resulting in the beneficial conversion feature associated with the remaining convertible notes and warrants of $1,187,242 (recognized as an increase to additional paid-in capital) and a gain on fair value of derivatives liabilities of $20,015,840. Please see Note 12 – “Derivative Liabilities” below for more information.