Replies to post #45115 on Therapeutic Solutions International Inc (TSOI)

[BigBadWolf]

https://www.otcmarkets.com/filing/html?id=15372244&guid=55ywkew26hwfJth
September 30, 2021

Note 8 – Convertible Notes Payable

At various times during the nine months ended September 30, 2021, the Company entered into convertible promissory notes with principal amounts totaling $376,000 with a third party for which the proceeds were used for operations. The Company received net proceeds of $353,750, and a $22,250 original issuance discount was recorded. The convertible promissory notes incur interest at 12% per annum and mature on dates ranging from January 25, 2022 to August 2, 2022. The convertible promissory notes are convertible to shares of the Company's common stock 180 days after issuance. The conversion price per share is equal to 61% of the average of the three (3) lowest trading prices of the Company's common stock during the fifteen (15) trading days immediately preceding the applicable conversion date. The trading price is defined within the agreement as the closing bid price on the applicable trading market. The Company has the option to prepay the convertible notes in the first 180 days from closing subject to prepayment penalties ranging from 120% to 145% of principal balance plus interest, depending upon the date of prepayment. The convertible promissory notes include various default provisions for which the default interest rate increases to 22% per annum with the outstanding principal and accrued interest increasing by 150%. The Company was required to reserve at September 30, 2021 a total of 243,468,125 common shares in connection with these promissory notes.

Derivative liabilities

These convertible promissory notes are convertible into a variable number of shares of common stock for which there is not a floor to the number of common stock we might be required to issue. Based on the requirements of ASC 815 Derivatives and Hedging, the conversion feature represented an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period. Changes in the derivative liability fair value are reported in operating results each reporting period.

For the notes issued during the nine months ended September 30, 2021, the Company valued the conversion feature on the date of issuance resulting in an initial liability of $831,309. Since the fair value of the derivative was in excess of the proceeds received of $353,750, a full discount to convertible notes payable and a day one loss on derivative liabilities of $477,559 was recorded during the nine months ended September 30, 2021. Upon issuance, the Company valued the conversion feature using the Black-Scholes option pricing model with the following assumptions: conversion prices ranging from $0.0039 to $0.0351, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.031 to $0.054, an expected dividend yield of 0%, expected volatility ranging from 205% to 264%, risk-free interest rate ranging from 0.05% to 0.18%, and an expected term of one year.

During the nine months ended September 30, 2021, convertible notes with principal and accrued interest balances totaling $303,159 were converted into 10,499,263 shares of common stock. At each conversion date, the Company recalculated the value of the derivative liability associated with the convertible note recording a gain (loss) in connection with the change in fair market value. In addition, the pro-rata portion of the derivative liability as compared to the portion of the convertible note converted was reclassed to additional paid-in capital. During the nine months ended September 30, 2021, the Company recorded $302,365 to additional paid-in capital. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: conversion prices ranging from $0.02 to $0.035, the closing stock price of the Company’s common stock on the date of valuation ranging from $0.035 to $0.057, an expected dividend yield of 0%, expected volatility ranging from 215% to 251%, risk-free interest rates ranging from 0.06% to 0.09%, and expected terms ranging from 0.48 to 0.50 years

On September 30, 2021, the derivative liabilities on the remaining convertible notes were revalued at $342,117 resulting in a gain of $624,376 for the nine months ended September 30, 2021 related to the change in fair value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following assumptions: exercise price of $0.032, the closing stock price of the Company’s common stock on the date of valuation of $0.051, an expected dividend yield of 0%, expected volatility ranging from 142% to 223%, risk-free interest rate of 0.09%, and an expected term ranging from 0.54 to 0.84 years.

The Company amortizes the discounts over the term of the convertible promissory notes using the straight-line method which is similar to the effective interest method. During the nine months ended September 30, 2021 and 2020, the Company amortized $353,320 and $169,215 to interest expense, respectively. As of September 30, 2021, discounts of $217,842 remained which will be amortized through August 2022.