The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
Introductory Comment
Unless otherwise indicated, any reference
to “our company”, “we”, “us”, or “our” refers to Creative Medical Technology Holdings,
Inc., and as applicable to its wholly owned subsidiary, Creative Medical Technologies, Inc., a Nevada corporation (“
CMT
”).
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization
-
Creative Medical Technology Holdings, Inc., is considered to be a commercial stage company, following the commencement of sales
of stem cell separation equipment and disposable kits used in our Caverstem procedure to treat ED in the fourth quarter of 2017.
Our fiscal year end is December 31st. We have acquired the licensing rights for our Amniostem amniotic-based stem cell, purchased
the patent for our ED and lower back pain treatments, and filed patent applications for our neurological treatments.
Use of Estimates
–
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Basis of Presentation
–
The accompanying unaudited condensed consolidated financial statements have been prepared without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 2018 and for the three and nine month periods then ended have been made. Certain information
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. The operations for the three and nine month periods ended
September 30, 2018, are not necessarily indicative of the operating results for the full year.
Going Concern
– The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However,
during the nine month period ended September 30, 2018, the Company incurred a net loss of $15,590,004 had negative cash flows from
operating activities, had a working capital deficit of $7,522,727 and had minimal revenue-generating activities. These factors
raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing
to raise any necessary additional funds not provided by operations through loans or through additional sales of equity securities.
There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations.
The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of
these uncertainties.
Revenue
- The Company recognizes
revenue as it is earned as defined by U.S. GAAP. We have adopted the new revenue recognition standard ASC 606 that went into
effect on January 1, 2018 and determined there was no material impact to the Company’s financial statements. All revenues
reported in 2018 and beyond will reflect those standards.
Fair Value
of Financial Instruments
- The Company’s financial instruments consist of cash and cash equivalents,
convertible notes, and payables. The carrying amount of cash and cash equivalents and payables approximates fair value because
of the short-term nature of these items.
When determining
fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market
data is not available. As of September 30, 2018 and December 31, 2017, the Company didn’t have any Level 1 or 2 financial
instruments. The table below reflects the results of our Level 3 fair value calculations:
|
|
Notes
|
|
|
Warrants
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability at December 31, 2017
|
|
$
|
1,060,315
|
|
|
$
|
248,875
|
|
|
$
|
1,309,190
|
|
Addition of new conversion option derivatives
|
|
|
2,839,915
|
|
|
|
365,268
|
|
|
|
3,205,183
|
|
Conversion of note derivatives
|
|
|
(4,739,284
|
)
|
|
|
(4,597,397
|
)
|
|
|
(9,336,681
|
)
|
Change in fair value
|
|
|
1,948,816
|
|
|
|
9,691,609
|
|
|
|
11,640,425
|
|
Derivative liability at September 30, 2018
|
|
$
|
1,109,762
|
|
|
$
|
5,708,355
|
|
|
$
|
6,818,117
|
|
Basic and Diluted Loss Per Share –
The Company follows Financial Accounting Standards Board (“FASB”) ASC 260 Earnings per Share to account for
earnings per share. Basic earnings per share (“EPS”) calculations are determined by dividing net loss by the weighted
average number of shares of common stock outstanding during the year. Diluted earnings per share calculations are determined by
dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods
when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. During the three and nine
month periods ended September 30, 2018, the Company had 500,000 options and 255,771,846 warrants to purchase common stock outstanding.
During the three and nine month periods ended September 30, 2017, the Company had 500,000 options and 966,667 warrants to purchase
common stock outstanding. In addition, the Company has various convertible notes payable which at September 30, 2018 are convertible
into approximately 73,750,820 shares of common stock. The effects of the dilutive securities were anti-dilutive due to net loss
during the three and nine month periods ended September 30, 2018 and 2017.
Recent Accounting Pronouncements
–
In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities
from Equity (Topic 480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial
instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features)
that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance
creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down
round features that require fair value measurement of the entire instrument or conversion option. For public business entities,
the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning
after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company is currently evaluating
the impact of adopting this guidance on its consolidated financial statements.
The Company has reviewed all recently issued,
but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position
or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its
financial statements other than disclosed above.
NOTE 2 – LICENSING AGREEMENTS
ED Patent
– The Company
acquired a patent from CMH.
Amortization expense of $2,493 and $7,479 were recorded for the
three month and nine months periods ended September 30, 2018, respectively.
As of September 30, 2018, the carrying value
of the patent was $73,397. The Company expects to amortize approximately $9,972 annually through 2026 related to the patent costs.
Male Infertility License Agreement
-
The Company has acquired a royalty license from Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center
(“
LABIOMED
”) granting the exclusive license to the products and services of a LABIOMED patent.
The Company is subject to a 6% royalty
payment to LABIOMED on net sales of any products under this license and 25% on any non-royalty sublicense income. Commencing in
2019, and each subsequent year thereafter, the Company is required to pay to LABIOMED annual maintenance royalties of $20,000,
unless during the prior one-year period the Company paid $50,000 or more in actual royalty payments. Finally, the Company agreed
to pay LABIOMED certain milestone payments upon achieving the milestones set forth in the agreement. As of September 30, 2018,
no amounts are currently due to LABIOMED.
Multipotent Amniotic Fetal Stem Cells
License Agreement -
In August 2016, CMT entered into a License Agreement with a University. This license agreement grants
to CMT the exclusive right to all products derived from a patent for use of multipotent amniotic fetal stem cells composition of
matter throughout the world during the period ending on the expiration date of the longest-lived patent rights under the patent.
CMT paid the University an initial license fee within 30 days of entering into the agreement. CMT is also required to pay annual
license maintenance fees on each anniversary date of the agreement, which maintenance fees would be credited toward any earned
royalties for any given period. The License Agreement provides for payment of various milestone payments and earned royalties on
the net sales of licensed products by CMT or any sub licensee. CMT is also required to reimburse the University for any future
costs associated with maintaining the patent. CMT may terminate the license agreement for any reason upon 90 days’ written
notice and the University may terminate the agreement in the event CMT fails to meet its obligations set forth therein, unless
the breach is cured within 30 days of the notice from the University specifying the breach. CMT is also obligated to indemnify
the University against claims arising due to the exercise of the license by CMT or any sub licensee. As of September 30, 2018,
no amounts are currently due to the University.
The Company estimates that the patent expires
in February 2026 and has elected to amortize the patent through the period of expiration on a straight line basis. Amortization
expense of $293 and $879 were recorded for the three and nine month periods ended September 30, 2018
,
respectively.
As of September 30, 2018, the carrying value of the patent was $7,894. The Company expects to amortize approximately
$1,172 annually through 2026 related to the patent costs.
Lower Back Patent
–
The Company, through a newly created subsidiary of CMT, StemSpine, LLC, acquired a patent from CMH, a related company, on May 17,
2017, for $100,000, payable in cash or stock. The patent expires on May 19, 2027 and the Company has elected to amortize the patent
over a ten-year period on a straight line basis. Amortization expense of $2,500 and $7,500 were recorded for the three and nine
month periods ended September 30, 2018, respectively. As of September 30, 2018, the carrying value of the patent was $87,500. The
company expects to amortize approximately $10,000 annually through 2027 related to the patent costs.
For a period of five years from the date
of the first sale of any product derived from the patent, StemSpine is required to make royalty payments of 5% from gross sales
of products. StemSpine has also agreed to pay royalties of 50% of sale price or ongoing payments from third parties for licenses
granted under the patent to third parties. In addition, StemSpine has agreed to make progress payments under the patent purchase
agreement determined by whether the technology represented by the patent is tested by use of autologous cells or allogenic cells.
In the case of pursuit of the technology using autologous cells, StemSpine has agreed to pay CMH $100,000 upon the signing of an
agreement with a university for the initiation of an IRB clinical trial and $200,000 upon completion of the clinical trial. In
the event StemSpine determines to pursue the technology using allogenic cells, StemSpine has agreed to pay CMH $100,000 upon the
filing for IND with the FDA; $200,000 upon the dosing of the first patient in Phase 1-2 clinical trial; and $400,000 upon the dosing
of the first patient in Phase 3 clinical trial. In each case StemSpine has the option to make these payments in cash or in shares
of the Company’s common stock at a discount to the market price of the stock at the time of the transaction. The parties
to the patent purchase agreement have agreed that in no event will the aggregate royalty payments under the agreement exceed $2,500,000.
NOTE 3 – RELATED PARTY TRANSACTIONS
The Company has incurred a monetary obligation
to a related corporation to reimburse the cost of services provided to the Company (management and consulting) through September
30, 2018. Each of the Company’s executive officers is employed by the parent company, CMH, and will continue to receive his
or her salary or compensation from CMH. The Company has an agreement with CMH which obligates the Company to reimburse CMH $35,000
per month for such services beginning January 2016. The compensation paid by CMH will include an allocation of services performed
for CMH and for the Company. The amounts are presented as a “management fee payable - related party” on the accompanying
unaudited condensed consolidated balance sheets. The liability is non-interest bearing, unsecured, and will be due upon the Company
successfully raising at least $1,000,000 through the sale of equity. As of September 30, 2018, amounts due to CMH under the arrangement
were $269,050.
On November 17, 2017, the Company entered
into a Management Reimbursement Agreement dated November 17, 2017, with Creative Medical Technologies, Inc. (“ CMT ”),
the wholly owned subsidiary of the Company, and with Creative Medical Health, Inc., the parent of the Company (“ CMH ”).
The Agreement memorializes the arrangement between the parties whereby the Company has, since January 1, 2016, reimbursed CMH $35,000
per month for the services of management and consultants employed by CMH and performing services for the Company and CMT. At the
option of CMH, the reimbursable amounts set forth in the Agreement may be paid from time to time in shares of common stock of the
Company at a price equal to a 30% discount to the lowest closing price during the 20 trading days prior to time the notice is given.
The Agreement may be terminated by either party upon 30 days’ prior written notice.
On January 12, 2018, the Company entered
into a Debt Settlement Agreement with Creative Medical Health, Inc., the parent of the Company, to exchange $150,000 in management
fees owed to Creative Medical Health, Inc. in exchange for 3,000,000 shares of Series A Preferred Stock. In turn, Creative Medical
Health, Inc. entered into a Debt Settlement Agreement with Timothy Warbington, our CEO, Chairman, and principal shareholder to
transfer the 3,000,000 shares of Series A Preferred Stock in exchange for $150,000 of unpaid compensation owed to Mr. Warbington.
During 2016, the Company entered into three
note payable agreements with CMH in which the proceeds were used in operations. The notes payable were dated February 2, 2016,
May 1, 2016 and May 18, 2016 and resulted in borrowings of $50,000, $50,000 and $25,000, respectively. Notes payable of $50,000
mature on April 30, 2018, $50,000 on July 31, 2018 and $25,000 on May 18, 2018. On May 4, 2017, CMT and CMH entered into a Note
Extension and Limited Waiver Agreement whereby the parties extended the maturity date of the 8% Promissory Note dated February
2, 2016, in the principal amount of $50,000, from April 30, 2017, to April 30, 2018, and CMH waived the nonpayment of the Note
by CMT on the original maturity date. On extension, CMT paid to CMH accrued interest related to the extended note of $4,050. On
July 31, 2017, CMT and CMH entered into a Note Extension and Limited Waiver Agreement whereby the parties extended the maturity
date of the 8% Promissory Note dated May 1, 2016, in the principal amount of $50,000, from July 31, 2017, to July 31, 2018, and
CMH waived the nonpayment of the Note by CMT on the original maturity date. On extension, CMT paid to CMH accrued interest related
to the extended note of $4,050. The notes incur interest at 8% per annum on the outstanding balance of the notes.
On April 11, 2018 CMH converted the total
principal and accrued interest on all three notes into 9,855,307 shares of common stock.
See Note 2 for discussion of an additional
related party transaction with CMH.
NOTE 4 – DEBT
$400,000 Convertible Debenture –
Peak One – Note 5
On May 2, 2017, the Company entered into
a convertible debenture agreement with a third party for an aggregate principal amount of up to $400,000, for which up to $360,000
in proceeds is to be received. On May 2, 2017, the Company received the first tranche of proceeds of $85,000 for which the Company
issued a convertible debenture in the face amount of $100,000. During the three and nine month periods ended September 30, 2018
the Company amortized $0 and $54,085 to interest expense respectively. As of September 30, 2018, a discount of $0 remained. During
the three and nine month periods ended September 30, 2018, the lender converted $0 of principal into 0 shares of common stock and
$54,200 of principal into 23,485,183 shares of common stock respectively. On March 23, 2018, the Company paid the lender $1,000
to extinguish the remaining principal balance. As of September 30, 2018 the Company had fulfilled all the obligations of the debenture.
$115,000 Convertible Note – Auctus
– Note 6
On April 10, 2017, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $115,000, for which $103,250 in proceeds
were received on May 5, 2017. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a
maturity date of January 10, 2018. The note holder has notified the company they do not consider the note in default and their
intent is to continue converting the remaining principal and accrued interest into common shares. During the three and nine month
periods ended September 30, 2018, the Company amortized $0 and $4,600 to interest expense respectively. As of September 30, 2018,
a discount of $0 remained.
The conversion price is subject to
adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and
any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company
accounted for the conversion feature and the warrants as derivative liabilities, see Note 5. Derivative accounting applies as
the conversion price is variable and does not have a floor as to the number of common shares in which could be converted.
Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the
Company’s stock price and additional dilution of current shareholders may take place. During the three and nine month
periods ended September 30, 2018, the lender did not convert any principal, interest and fees into common shares
and converted $134,127 of principal, interest and fees into 145,929,641 common shares respectively. As of September 30, 2018
the Company had fulfilled all the obligations of the note.
$55,000 Convertible Note – Global
– Note 7
On April 24, 2017, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $55,000, for which $47,500 in proceeds
were received on May 8, 2017. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a
maturity date of April 24, 2018. During the three and nine month periods ended September 30, 2018 the Company amortized $0 and
$17,863 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature and the warrants as derivative liabilities, see Note 5. Derivative accounting applies as the conversion price is variable
and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid
prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of
current shareholders may take place. During the three and nine month periods ended September 30, 2018, the lender did not convert any principal, interest and fees into common shares
and converted $47,613 of principal, interest and fees into 31,442,665 common shares respectively.
As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$50,000 Secured Convertible Note –
WBRE – Note 8
On June 26, 2017, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $50,000, for which $50,000 in proceeds were
received on September 26, 2017. Under the terms of the agreement, the convertible note incurs interest at 12% per annum and matured
on December 26, 2017. The convertible note has since been retired through a debt exchange agreement with a third party dated March
8, 2018, see "$60,000 Convertible Note" below.
$50,000 Convertible Note – Crown
Bridge – Note 9
On July 19, 2017, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $50,000, for which $43,000 in proceeds were
received on July 25, 2017. Under the terms of the agreement, the convertible note incurs interest at 5% per annum and has a maturity
date of July 19, 2018. During the three and nine month ended September 30, 2018 the Company amortized $0 and $27,397 respectively
to interest expense. As of September 30, 2018, a discount of $0 remained.
During the three and nine month periods
ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $54,697 of principal,
interest and fees into 56,453,381 common shares respectively. As of September 30, 2018 there were 333,470,447 common shares reserved
with our transfer agent. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$30,000 Convertible Note – Global
– Note 14
On January 9, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $30,000, for which 12,500,000 outstanding
warrants from the convertible note dated April 24, 2017 were extinguished. The difference between the convertible note, the conversion
feature and the value of the warrants was recorded as a derivative loss. No proceeds were received in conjunction with this note.
Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of January 9, 2019.
The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price
equal to 60% of the lowest traded price of the Company’s common stock during the previous 20 trading days preceding the conversion
date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number
of common shares the convertible note is convertible into.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place. As of September 30, 2018, there were 0 shares reserved with our transfer agent with a potential of up to 0 being
reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the
convertible notes at any time within 180 days from the date of issuance at 120% of the principal and interest; and after 180 days
the right of prepayment expires.
During the three and nine month periods
ended September 30, 2018, the lender converted $5,000 of principal, interest and fees into 816,994 common shares and $32,744 of
principal, interest and fees into 5,350,345 common shares respectively. As of September 30, 2018 the Company had fulfilled all
the obligations of the note.
$44,000 Convertible Note – Adar Bays
– Note 15
On January 17, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $44,000, for which $19,000 in proceeds
were received on January 23, 2018 and $19,000 in proceeds were received on February 26, 2018. Under the terms of the agreement,
the convertible note incurs interest at 10% per annum and has a maturity date of January 17, 2019. The convertible note is convertible
upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest traded
price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required
at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing the on issuance discount of $4,000, legal fees of $2,000 and the remaining
discount of $34,324 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total
discount of $40,324 to interest expense using the straight-line method over the term of the loan. During the three and nine month
periods ended September 30, 2018 the Company amortized $0 and $40,324 to interest expense respectively. As of September 30, 2018,
a discount of $0 remained.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place. As of September 30, 2018, there were 0 shares reserved with our transfer agent with a potential of 0 being reserved
if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
There is no option for the Company to redeem
the convertible note prior to maturity.
During the three and nine month periods
ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $44,000 of principal,
interest and fees into 27,518,485 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations
of the note.
In connection with the original agreement,
the holder had the option to fund three additional $44,000 back end convertible notes. On July 16, 2018, the holder exercised this
option and entered into three separate $44,000 convertible notes totaling $132,000. For which the Company received a total of $114,000
in net proceeds. Under the terms of the agreements, the convertible notes incurred interest at 10% per annum and has a maturity
date of January 17, 2019. The convertible note are convertible upon issuance at a fixed price of $0.025 per share. The Company
is amortizing the on issuance discount of $18,000 and the remaining discount of $114,000 due to the recording of a beneficiation
conversion feature. In July and August 2018, the convertible notes were converted into 5,280,000 shares of common stock. The Company
amortized the entire discount of $132,000 to interest expense during the three and nine months ended September 30, 2018. As of
September 30, 2018, a discount of $0 remained.
$12,500 Convertible Note – Global
– Note 16
On January 22, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $12,500, in exchange for the release
of reserved shares to the Company. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has
a maturity date of January 22, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s
stock at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the previous 20
trading days preceding the conversion date.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the
convertible note within 180 days from the date of issuance at 120% of the principal and interest. After 180 days the right of prepayment
expires.
During the three and nine month periods
ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $12,925 of principal,
interest and fees into 2,111,873 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations
of the note.
$53,000 Convertible Note – PowerUp
– Loan 17
On February 15, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $53,000, for which $50,000 in proceeds
were received on February 22, 2018 . Under the terms of the agreement, the convertible note incurs interest at 12% per annum and
has a maturity date of February 15, 2019. The convertible note is convertible upon issuance and convertible into shares of the
Company’s stock at a conversion price equal to 61% of the average of the two lowest traded prices of the Company’s
common stock during the previous 15 trading days preceding the conversion date. The Company is required at all times to reserve
shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible
into. The Company is amortizing the on issuance discount of $3,000 and the remaining discount of $50,000 due to the recording of
a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $53,000 to interest expense using
the straight-line method over the term of the loan. During the three and nine month ended September 30, 2018 the Company amortized
$0 and $53,000 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place. As of September 30, 2018, there were 0 shares reserved with our transfer agent with a potential of up to 0 being
reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 22%.
The Company has the option to redeem the
convertible notes within 90 days from the date of issuance at 115% of the principal and interest; between 91 and to 180 days from
the date of issuance at 120% of the principal and interest; and after 180 days the right of prepayment expires.
On April 26, 2018 the Company retired the
note with a payment of $82,084 to the note holder. A derivative liability gain of $279,795 was recorded to reflect the retirement
of the derivative liability.
$27,500 Convertible Note – Global
– Note 18
On March 9, 2018, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $27,500, for which proceeds of $23,500 were
received on March 9, 2018. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity
date of March 9, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock
at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the previous 20 trading
days preceding the conversion date. The Company is amortizing the discount of $27,500 due to on issuance discount of $4,000 and
the recording of a derivative liability as discussed in Note 5. The Company is amortizing the discount of $27,500 to interest expense
using the straight-line method over the term of the loan. During the three and nine month ended September 30, 2018 the Company
amortized $0 and $27,500 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the
convertible notes within 30 days from the date of issuance at 115% of the principal and interest; between 31 and to 60 days from
the date of issuance at 120% of the principal and interest; between 61 and to 90 days from the date of issuance at 125% of the
principal and interest; between 91 and to 120 days from the date of issuance at 130% of the principal and interest; between 121
and to 150 days from the date of issuance at 135% of the principal and interest; between 151 and 180 days from issuance at 140%
of principal and interest; and after 180 days the right of prepayment expires.
During the three and nine month periods
ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $28,344 of principal,
interest and fees into 4,631,346 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations
of the note.
$60,000 Convertible Note – Global
– WBRE Exchange – Note 19
March 9, 2018, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $60,000, in exchange for the extinguishment
of the outstanding principal due on the convertible note dated September 26, 2017, see disclosure above for "
$50,000 Secured
Convertible Note".
No proceeds were received in conjunction with the exchange of this convertible note. Under the terms
of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of March 9, 2019. The convertible
note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of
the lowest traded price of the Company’s common stock during the previous 20 trading days preceding the conversion date.
At no additional cost, we issued to the note holder 30,000,000 five-year warrants to purchase common stock at $0.01, subject to
adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the
convertible notes within 180 days from the date of issuance at 120% of the principal and interest; and after 180 days the right
of prepayment expires.
At the date of the agreement, the Company
determined that the transactions qualified for extinguishment accounting whereby the transaction was accounted for at fair market
value with the excess value between the fair value of the old note and new note was accounted for as an extinguishment loss of
$154,284.
During the three and nine month periods
ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $60,147 of principal,
interest and fees into 45,665,203 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations
of the note.
$115,000 Convertible Note – Auctus
– Note 20
On March 13, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $115,000, for which $97,250 in proceeds
were received on March 19, 2018. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has
a maturity date of December 13, 2018. The convertible note is convertible upon issuance and convertible into shares of the Company’s
stock at a conversion price equal to 60% of the average of the two lowest traded prices of the Company’s common stock during
the previous 25 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s
common stock equal to six times the number of common shares the convertible note is convertible into. The Company is amortizing
the original issuance discount of $15,000 legal fees of $2,750 and the remaining discount of $97,250 due to the recording of a
derivative liability as discussed in Note 5. The Company is amortizing the total discount of $115,000 to interest expense using
the straight-line method over the term of the loan. During the three and nine month periods ended September 30, 2018 the Company
amortized $69,418 and $115,000 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place. As of September 30, 2018, there were 34,737,400 shares reserved with our transfer agent with a potential of 0 being
reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 125% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the
convertible notes within 90 days from the date of issuance at 125% of the principal and interest; between 91 and to 180 days from
the date of issuance at 140% of the principal and interest; and after 180 days the right of prepayment expires.
During the three and nine month periods
ended September 30, 2018, the lender converted $43,769 of principal, interest and fees into 34,737,400 common shares. On August
8, 2018, the Company retired the note and accrued interest with a payment of $106,312 to the note holder, which included a prepayment
fee of $30,128 recorded within interest expense.
$48,000 Convertible Note – GS –
Note 21
On March 15, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $48,000, for which $45,600 in proceeds
were received on March 20, 2018. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has
a maturity date of March 15, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s
stock at a conversion price equal to 63% of the average of the two lowest traded prices of the Company’s common stock during
the previous 12 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s
common stock equal to six times the number of common shares the convertible note is convertible into. The Company is amortizing
legal fees of $2,400 and the remaining discount of $45,600 due to the recording of a derivative liability as discussed in Note
5. The Company is amortizing the total discount of $48,000 to interest expense using the straight-line method over the term of
the loan. During the three and months ended September 30, 2018 the Company amortized $0 and $48,000 to interest expense respectively.
As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place. As of September 30, 2018, there were 0 shares reserved with our transfer agent with a potential of 0 being reserved
if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the
convertible notes within 60 days from the date of issuance at 110% of the principal and interest; between 61 and to 120 days from
the date of issuance at 124% of the principal and interest; between 121 days and to 180 days from the date of issuance at 138%;
and after 180 days the right of prepayment expires.
On April 25, 2018 the Company retired the
note with a payment of $60,000 to the note holder. A derivative liability gain of $209,076 was recorded to reflect the retirement
of the derivative liability.
$110,000 Convertible Note – Morningview
– Note 22
On April 3, 2018, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $110,000, for which $95,000 in proceeds were
received on April 3, 2018 . Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity
date of March 29, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock
at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the previous 20 trading
days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock
equal to five times the number of common shares the convertible note is convertible into. The Company is amortizing legal fees
of $2,652 and the remaining discount of $107,348 due to the recording of a derivative liability as discussed in Note 5. The Company
is amortizing the total discount of $110,000 to interest expense using the straight-line method over the term of the loan. During
the three and nine months ended September 30, 2018 the Company amortized $27,726 and $54,247 to interest expense respectively.
As of September 30, 2018, a discount of $55,753 remained. At no additional cost, we issued to the note holder 11,000,000 five-year
warrants to purchase common stock at $0.01, subject to adjustment if we issue securities at less than the exercise price.
The warrants are exercisable on a cashless basis.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion
feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have
a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the
note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders
may take place. As of September 30, 2018, there were 84,110,033 shares reserved with our transfer agent with a potential of 44,055,213
being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 18%.
The Company has the option to redeem the
convertible notes within 180 days from the date of issuance at 140% of the principal and interest. After 180 days the right of
prepayment expires.
$110,000 Convertible Note – Fourth
Man – Note 23
On April 11, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $110,000, for which $100,000 in proceeds
were received. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity 12 months
from the effective date of payment. The convertible note is convertible upon issuance and convertible into shares of the Company’s
stock at a conversion price equal to 60% of the lowest trading price of the Company’s common stock during the previous 20
trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common
stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance
discount of $10,000 and the remaining discount of $100,000 due to the recording of a derivative liability as discussed in Note
5. The Company is amortizing the total discount of $110,000 to interest expense using the straight-line method over the term of
the loan. During the three and months ended September 30, 2018 the Company amortized $27,726 and $51,836 to interest expense respectively.
As of September 30, 2018, a discount of $58,164 remained. At no additional cost, we issued to the note holder 11,000,000 five-year
warrants to purchase common stock at $0.01, subject to adjustment if we issue securities at less than the exercise price.
The warrants are exercisable on a cashless basis.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company anticipates that it will
account for conversion feature as a derivative liability. Derivative accounting applies as the conversion price is variable and
does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid
prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of
current shareholders may take place. As of September 30, 2018, there were 18,333,333 shares reserved with our transfer agent with
a potential of 26,377,915 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 18%.
The Company has the option to redeem the
convertible notes within 180 days from the date of issuance at 140% of the principal and interest. After 180 days the right of
prepayment expires.
$110,000 Convertible Note – Power
Up – Note 24
On April 13, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $110,000, for which $99,000 in proceeds
were received. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date
of March 29, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at
a conversion price equal to 60% of the lowest trading price of the Company’s common stock during the previous 20 trading
days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock
equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance
discount of $10,000, legal fees of $1,000 and the remaining discount of $99,000 due to the recording of a derivative liability
as discussed in Note 5. The Company is amortizing the total discount of $110,000 to interest expense using the straight-line method
over the term of the loan. During the three and months ended September 30, 2018 the Company amortized $27,726 and $51,836 to interest
expense respectively. As of September 30, 2018, a discount of $58,164 remained.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company anticipates that it will
account for conversion feature as a derivative liability. Derivative accounting applies as the conversion price is variable and
does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid
prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of
current shareholders may take place. As of September 30, 2018, there were 13,000,000 shares reserved with our transfer agent with
a potential of 26,377,915 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 22%.
The Company has the option to redeem the
convertible notes within 30 days from the date of issuance at 115% of the principal and interest; between 31 and to 60 days from
the date of issuance at 120% of the principal and interest; between 61 and to 90 days from the date of issuance at 125% of the
principal and interest; between 91 and to 120 days from the date of issuance at 130% of the principal and interest; between 121
and to 150 days from the date of issuance at 135% of the principal and interest; between 151 and to 180 days from the date of issuance
at 140% of the principal and interest; and after 180 days the right of prepayment expires.
$108,000 Convertible Note – Global
– Note 25
On May 14, 2018, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $108,000, for which $94,960 in proceeds were
received. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of May
14, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion
price equal to 60% of the lowest trading price of the Company’s common stock during the previous 20 trading days preceding
the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three
times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of
$8,000, legal fees of $5,040 and the remaining discount of $94,960 due to the recording of a derivative liability as discussed
in Note 5. The Company is amortizing the total discount of $108,000 to interest expense using the straight-line method over the
term of the loan. During the three and nine month ended September 30, 2018 the Company amortized $27,222 and $41,129 to interest
expense. As of September 30, 2018, a discount of $66,871 remained. At no additional cost, we issued to the note holder 3,600,000
five-year warrants to purchase common stock at $0.025, subject to adjustment if we issue securities at less than the exercise price.
The warrants are exercisable on a cashless basis.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company anticipates that it will
account for conversion feature as a derivative liability. Derivative accounting applies as the conversion price is variable and
does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid
prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of
current shareholders may take place. As of September 30, 2018, there were 35,000,000 shares reserved with our transfer agent with
a potential of 25,486,329 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
There is no option to pre-pay this note.
$108,000 Note – Global –
Note 26
On June 27, 2018, the Company entered into
a note agreement with a third party for an aggregate principal amount of $108,000, for which $100,000 in proceeds were received.
Under the terms of the agreement, the note incurs interest at 8% per annum and has a maturity date of September 27, 2019. The Company
is amortizing the on-issuance discount of $8,000 to interest expense using the straight-line method over the term of the loan.
During the three and nine month ended September 30, 2018 the Company amortized $1,797 and $1,863 and to interest expense respectively.
On September 20, 2018, this note was combined with other notes disclosed below, a portion of which was repaid with the remainder
being rolled into Global - Note 28 disclosed below. As of September 30, 2018, a discount of $0 remained.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
$108,000 Note – Global –
Note 27
On August 8, 2018, the Company entered
into a note agreement with a third party for an aggregate principal amount of $108,000, for which $106,500 in proceeds were received.
Under the terms of the agreement, the note incurs interest at 8% per annum and has a maturity date of August 8, 2019. The Company
is amortizing the on-issuance discount of $1,500 to interest expense using the straight-line method over the term of the loan.
During the three and nine month ended September 30, 2018 the Company amortized $177 to interest expense. On September 20, 2018,
this note was combined with other notes disclosed immediately above and below, a portion of which was repaid with the remainder
being rolled into Global - Note 28 disclosed below. As of September 30, 2018, a discount of $0 remained.
In the event of default, the holder has
the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note,
including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
$183,250 Convertible Note – Global
– Note 28
On September 20, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $183,250, for which $100,000 in proceeds
were received and remaining balances convertible notes disclosed above were rolled over. At the time of combination, the total
carrying amount outstanding under the prior notes was $211,570. In connection, with the agreement, Global was paid $139,352, principal
of $69,676 rolled into the new note and a gain of $2,542 was recorded within interest expense. Under the terms of the agreement,
the convertible note incurs interest at 8% per annum and has a maturity date of September 20, 2019. The convertible note is convertible
at any time after 31 days after the closing date and convertible into shares of the Company’s stock at a conversion price
equal to 65% of the lowest trading price of the Company’s common stock during the previous 20 trading days preceding the
conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times
the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $13,574
and the remaining discount of $169,676 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing
the total discount of $183,250 to interest expense using the straight-line method over the term of the loan. During the three and
nine month ended September 30, 2018 the Company amortized $5,021 to interest expense. As of September 30, 2018, a discount of $178,229
remained. At no additional cost, we issued to the note holder 1,247,618 five-year warrants to purchase common stock at $0.088,
subject to adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless
basis.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company anticipates that it will
account for conversion feature as a derivative liability. Derivative accounting applies as the conversion price is variable and
does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid
prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of
current shareholders may take place. As of September 30, 2018, there were 25,000,000 shares reserved with our transfer agent with
a potential of 38,859,058 being reserved if and when the lender issues a request to our transfer agent.
In the event of default that is either
(A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or (C) paid in full, whichever
is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded, (y) due, or (z) paid in full,
whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all other amounts, costs, expenses
and liquidated damages due in respect of the Note.
The Company has the option to redeem the
note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees or pre-payment penalties.
From 31 through 170 days, the company has the option to redeem the note at the default amount stated above. After 170 days the
right of prepayment expires.
$183,250 Convertible Note – Morningview
– Note 29
On September 20, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $183,250, for which $169,676 in proceeds
were received. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of
September 20, 2019. The convertible note is convertible at any time after 31 days after the closing date and convertible into shares
of the Company’s stock at a conversion price equal to 65% of the lowest trading price of the Company’s common stock
during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the
Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company
is amortizing an on-issuance discount of $13,574, legal fees of $8,363 and the remaining discount of $161,313 due to the recording
of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $183,250 to interest expense
using the straight-line method over the term of the loan. During the three and nine month ended September 30, 2018 the Company
amortized $5,021 to interest expense. As of September 30, 2018, a discount of $178,229 remained. At no additional cost, we issued
to the note holder 1,247,618 five-year warrants to purchase common stock at $0.088, subject to adjustment if we issue securities
at less than the exercise price. The warrants are exercisable on a cashless basis.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company anticipates that it will
account for conversion feature as a derivative liability. Derivative accounting applies as the conversion price is variable and
does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid
prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of
current shareholders may take place. As of September 30, 2018, there were 25,000,000 shares reserved with our transfer agent with
a potential of 38,859,058 being reserved if and when the lender issues a request to our transfer agent.
In the event of default that is either
(A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or (C) paid in full, whichever
is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded, (y) due, or (z) paid in full,
whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all other amounts, costs, expenses
and liquidated damages due in respect of the Note.
The Company has the option to redeem the
note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees or pre-payment penalties.
From 31 through 170 days, the company has the option to redeem the note at the default amount stated above. After 170 days the
right of prepayment expires.
$183,250 Convertible Note – Fourth
Man – Note 29
On September 20, 2018, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $183,250, for which $169,676 in proceeds
were received. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of
September 20, 2019. The convertible note is convertible at any time after 31 days after the closing date and convertible into shares
of the Company’s stock at a conversion price equal to 65% of the lowest trading price of the Company’s common stock
during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the
Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company
is amortizing an on-issuance discount of $13,574, legal fees of $8,363 and the remaining discount of $161,313 due to the recording
of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $183,250 to interest expense
using the straight-line method over the term of the loan. During the three and nine month ended September 30, 2018 the Company
amortized $5,021 to interest expense. As of September 30, 2018, a discount of $178,229 remained. At no additional cost, we issued
to the note holder 1,247,618 five-year warrants to purchase common stock at $0.088, subject to adjustment if we issue securities
at less than the exercise price. The warrants are exercisable on a cashless basis.
The conversion price is subject to adjustment
in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances
of securities below the conversion price of the convertible note. On the date of issuance, the Company anticipates that it will
account for conversion feature as a derivative liability. Derivative accounting applies as the conversion price is variable and
does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid
prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of
current shareholders may take place. As of September 30, 2018, there were 25,000,000 shares reserved with our transfer agent with
a potential of 38,859,058 being reserved if and when the lender issues a request to our transfer agent.
In the event of default that is either
(A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or (C) paid in full, whichever
is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded, (y) due, or (z) paid in full,
whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all other amounts, costs, expenses
and liquidated damages due in respect of the Note.
The Company has the option to redeem the
note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees or pre-payment penalties.
From 31 through 170 days, the Company has the option to redeem the note at the default amount stated above. After 170 days the
right of prepayment expires.
As of September 30, 2018, future loan maturities
are as follows:
For the year ended December 31,
|
|
|
|
|
|
|
|
2018
|
|
|
0
|
|
2019
|
|
|
987,750
|
|
Total
|
|
$
|
987,750
|
|
NOTE 5 – DERIVATIVE
LIABILITIES
Derivative
Liabilities
In connection
with convertible notes payable, the Company records derivative liabilities for the conversion feature. In addition, the Company
has warrants for which the exercise prices reset upon future events. These warrants are also considered to be derivative liabilities.
The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at each reporting
period. The warrants are valued on the date of issuance and revalued at each reporting period. During the nine months ended September
30, 2018, the Company recorded initial derivative liabilities of $3,205,183 based upon the following Black-Scholes option pricing
model average assumptions: an exercise price of $0.0009 to $0.0137 our stock price on the date of grant of $0.0029 to $0.0550,
expected dividend yield of 0%, expected volatility of 86% to 214%, risk free interest rate of 2.03% to 2.80% and expected terms
ranging from 1.0 to 5.0 years. Upon initial valuation, the derivative liability exceeded the face value certain of the convertible
note payables by approximately $2,671,002, which was recorded as a day one loss on derivative liability.
On September 30,
2018, the derivative liabilities were revalued at $6,818,117 resulting in a loss of $919,147 related to the change in fair market
value of the derivative liabilities during the three months ended September 30, 2018. The total loss related to the change in fair
market value of the derivative liabilities during the nine months ended September 30, 2018 was $11,640,425. The derivative liabilities
were revalued using the Black-Scholes option pricing model with the following average assumptions: an exercise price of $0.0008
to $0.0880, our stock price on the date of valuation ($0.0234), expected dividend yield of 0%, expected volatility of 95% to 214%,
risk-free interest rates ranging from 2.63 - 2.80%, and an expected terms ranging from 0.5 to 4.9 years.
In connection
with convertible notes converted and warrants exercised, as disclosed in Note 5, the Company reclassed derivative liabilities with
a fair value of $9,336,681 to additional paid-in capital. The Company revalued the derivative liabilities at each conversion date
recording the pro-rata portion of the derivative liability as compared to the portion of the convertible note converted to the
pre-conversion carrying value to additional paid-in capital
Future Potential
Dilution
Most of the Company’s
convertible notes payable contain adjustable conversion terms with significant discounts to market. As of September 30, 2018 the
Company’s convertible notes payable are potentially convertible into an aggregate of approximately 74 million shares of common
stock. In addition, due to the variable conversion prices on some of the Company’s convertible notes, the number of common
shares issuable is dependent upon the traded price of the Company’s common stock.
NOTE 6 – WARRANTS
The fair value of each warrant is estimated
using the Black-Scholes valuation model. Assumptions used in calculating the fair value at September 30, 2018 were as follows:
|
|
Weighted
Average
Inputs Used
|
|
|
|
|
|
Annual dividend yield
|
|
$
|
-
|
|
Expected life (years)
|
|
|
3.8 to 4.9
|
|
Risk-free interest rate
|
|
|
2.63
|
%
|
Expected volatility
|
|
|
91
|
%
|
Common stock price
|
|
$
|
0.0234
|
|
Since the expected life of the options
was greater than the Company’s historical stock information available, the Public Company determined the expected volatility
based on price fluctuations of comparable public companies.
The issuances, exercises and pricing re-sets during the nine
months ended September 30, 2018 are as follows:
Outstanding at December 31, 2017
|
|
|
23,426,087
|
|
Issuances
|
|
|
69,919,777
|
|
Exercises
|
|
|
(223,803,769
|
)
|
Anti-Dilution/Modification
|
|
|
401,430,751
|
|
Forfeitures/cancellations
|
|
|
(15,200,000
|
)
|
Outstanding at September 30, 2018
|
|
|
255,772,846
|
|
Weighted Average Price at September 30, 2018
|
|
$
|
0.0023
|
|
NOTE
7
–
SU
BSEQUENT
EVENTS
In
accordance
with AS
C
855, managem
e
nt
reviewed
all material
events
thr
o
ugh
August
14
,
2018,
for
the
se
financial
s
t
ateme
n
ts
and
there are no material
s
ub
s
equent
e
vents
t
o
r
epo
rt,
except
as follows:
Co
nv
ers
ion
No
ti
ce
From October 16
,
2018 through October 22, 2018 we
i
ssued
11,
967,158 shares of common stock
for
the
co
nver
s
i
on
o
f $115
,
000
in
convertib
l
e
n
o
t
es.
On October 18, 2018 we issued
9,297,576 shares of common stock to a lender whom exercised 10,000,000 warrants in a cashless exercise.
On November
12,
2
018 we i
ss
u
e
d
25
,
055,575
s
hares
o
f
co
mm
on
s
tock t
o a
lender
w
hom
exe
rci
se
d
28,200,000 warran
t
s
in
a cas
hl
ess
exe
r
c
i
se.