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.
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
-
Creative Medical Technology Holdings, Inc., formerly Jolley Marketing, Inc. (the “
Company
” or “
CMTH
”) was incorporated on December 3, 1998, in Nevada. On May 18, 2016, the Company consummated an Agreement and
Plan of Merger to acquire all of the outstanding capital stock of Creative Medical Technologies, Inc. (“
CMT
”)
in a transaction which was accounted for as a recapitalization, reverse merger, of the Company.
CMT was incorporated in the State of Nevada
on December 30, 2015 (“
Inception
”), and, subject to the reverse merger discussed above, elected December 31
as the Company’s year-end. The Company’s activities to date have consisted of developing a business plan, raising capital
through the issuance of equity instruments and notes payable from related and third parties, and obtaining the rights via license
agreements to certain medical technology.
On September 14, 2016, CMT filed a certificate
of organization for Amniostem LLC, a Nevada limited liability company and wholly owned subsidiary of CMT. Amniostem, LLC was
formed to create and/or license intellectual property in the area of amniotic fluid derived stem cells for therapeutic applications.
With this, management intends to address what it believes are unmet medical needs through development and commercialization of
amniotic fluid stem cell-based technologies. Management intends to seek in licensing opportunities as well as create intellectual
property in-house for this newly created entity. In May 2017, we formed StemSpine, LLC (“ StemSpine ”), in Nevada for
the purpose of creating and/or licensing intellectual property in the area of utilizing stem cells to treat lower back pain.
On June 19, 2018, we formed CaverStem International,
LLC, in Nevada for the purpose of licensing the CaverStem procedure internationally. This entity is 60% owned by Creative Medical
Technology Holdings, Inc. and 40% owned by Dr. Alex Gershman. It has not commenced any business activities.
Risks and Uncertainties
-
The Company has a limited operating history and has only recently started to generate revenues from its planned principal operations.
The Company’s business and operations
are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term
interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy.
A host of factors beyond the Company’s control could cause fluctuations in these conditions, including the political environment
and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through
recession, downturn or otherwise, could have a material adverse effect on the Company’s financial condition and the results
of its operations.
The Company has only recently started to generate
sales and we have limited marketing and/or distribution capabilities. The Company has limited experience in developing, training
or managing a sales force and will incur substantial additional expenses if it decides to market any of its current and future
products and services with an internal sales organization. Developing a marketing and sales force is also time consuming and could
delay launch of its future products and services. In addition, the Company will compete with many companies that currently have
extensive and well-funded marketing and sales operations. The Company’s marketing and sales efforts may be unable to compete
successfully against these companies. In addition, the Company has limited capital to devote to sales and marketing.
The Company’s industry is characterized
by rapid changes in technology and customer demands. As a result, the Company’s products and services may quickly become
obsolete and unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate
customer demands, develop new products and services and enhance the Company’s current products and services on a timely and
cost-effective basis. Further, the Company’s products and services must remain competitive with those of other companies
with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the
development, introduction or marketing of new products and services or enhanced versions of existing products and services. Also,
the Company may not be able to adapt new or enhanced products and services to emerging industry standards, and the Company’s
new products and services may not be favorably received. In addition, the Company may not have the capital resources to further
the development of existing and/or new ones.
Use of Estimates
-
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the
U.S. 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 consolidated
financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles
(“
U.S. GAAP
”). The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s
management, the consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary
for the fair presentation of the Company’s financial position for the periods presented.
Going Concern -
The accompanying
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S., which
contemplate continuation of the Company as a going concern. However, during the fiscal year ended December 31, 2018, the Company
incurred a net loss of
$13,655,653
, had negative cash flows from operating activities of
$1,052,270
, had negative
working capital of
$4,158,142
at December 31, 2018 and has only recently started to generate revenues. 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 common stock. There is no
assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The financial
statements do not include any adjustments that might result from the outcome of these uncertainties.
Concentration Risks -
The Federal Deposit Insurance Corporation insures cash deposits in most general bank accounts for up to $250,000 per
institution. The Company maintains its cash balances at one financial institution. As of December 31, 2018, the
Company’s balance exceeded the limit by $54,056.
Cash Equivalents -
The Company
considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Fair Value of Financial
Instrument
- 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.
Fair value is an exit price, representing the
amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability. Fair value measurements are required to be disclosed by level within the following
fair value hierarchy:
Level 1 – Inputs are unadjusted,
quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 – Inputs (other than
quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation
with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 – Inputs lack observable
market data to corroborate management’s estimate of what market participants would use in pricing the asset or liability
at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs
to the model.
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 December 31, 2018, the Company has level 3 fair value calculations on derivative liabilities. 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
|
|
|
3,229,129
|
|
|
|
398,293
|
|
|
|
3,627,422
|
|
Conversion of note derivatives
|
|
|
(4,887,925
|
)
|
|
|
(5,738,704
|
)
|
|
|
(10,626,629
|
)
|
Change in fair value
|
|
|
2,582,309
|
|
|
|
6,335,090
|
|
|
|
8,917,399
|
|
Derivative liability at December 31, 2018
|
|
$
|
1,983,828
|
|
|
$
|
1,243,554
|
|
|
$
|
3,227,382
|
|
Impairment
- The Company
records impairment losses when indicators of impairment are present and undiscounted cash flows estimated to be generated by those
assets are less than the assets’ carrying amount. Furthermore, the Company will make periodic assessments of technology
and clinical testing to determine if it plans to continue to pursue the technology and if the license, patent or other rights have
value. To date no impairment has been recorded.
Revenue -
The Company
recognizes revenue as it is earned as defined by U.S. GAAP. From Inception to December 31, 2018, there was minimal revenue
recognized. During 2019, the Company anticipates there will be revenue to report. We have adopted the new revenue recognition
standards that went into effect on January 1, 2018. All revenues reported in 2018 and beyond will reflect those standards.
Adoption of the standards has no effect on the Company’s revenues.
Research and Development
- Research
and development will continue to be a major function of the Company. Research and development costs will be expensed as incurred.
Expenses in the accompanying financial statements include certain costs which are directly associated with the Company’s
research and development:
|
1.
|
Erectile Dysfunction Technology
based upon the use of stem cells. These costs, which consist primarily of monies paid for clinical trial expenses, materials and
supplies and compensation costs amounted to
$92,982
for the year ended December 31, 2018. There were
$233,061
in
research costs for the period ended December 31, 2017;
|
|
2.
|
Amniotic Fluid-based Stem Cells. Pre-clinical research costs, which consist primarily of monies paid for laboratory space, materials and supplies amounted to
$3,639
for the year ended December 31, 2018. There were
$27,024
in research costs for the period ended December 31, 2017.
|
Stock-Based Compensation –
The
Company accounts for its stock-based compensation in accordance with Accounting Standards Codification (“
ASC
”)
718, Compensation - Stock Compensation. The Company accounts for all stock-based compensation using a fair-value method on the
grant date and recognizes the fair value of each award as an expense over the requisite vesting period.
The Company follows ASC 505-50, Equity-Based
Payments to Non-Employees, for stock options and warrants issued to consultants and other non-employees. In accordance with ASC
505-50, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon
the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly
determined. The fair value of the equity instrument, which is revalued at each reporting period, is charged directly to compensation
expense and additional paid-in capital over the period during which services are rendered.
Income Taxes
– The Company
accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s
tax returns. Deferred income taxes are recognized for differences between financial reporting and tax bases of assets and liabilities
at the enacted statutory tax rates in effect for the years in which the temporary differences are expected to reverse. The effect
on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company
evaluates the realizability of deferred tax assets and valuation allowances are provided when necessary to reduce net deferred
tax assets to the amounts expected to be realized.
The Company recognizes a tax benefit from an
uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions
are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company
will recognize interest and penalties related to unrecognized tax benefits in the income tax provision in the accompanying statement
of operations.
The Company calculates the current and deferred
income tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns
filed in subsequent years. Adjustments based on filed income tax returns are recorded when identified. The amount of income taxes
paid is subject to examination by U.S. federal and state tax authorities. The estimate of the potential outcome of any uncertain
tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. To the
extent that the assessment of such tax positions change, the change in estimate is recorded in the period in which the determination
is made.
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 loss periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. During
the year ended December 31, 2018, the Company had
500,000
options and
142,075,119
warrants to purchase common stock
outstanding; however, the effects were anti-dilutive due to the net loss.
Recent Accounting Pronouncements –
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.
NOTE 2 – LICENSING AGREEMENTS
ED Patent
– The Company
acquired a patent from CMH, a related company on February 2, 2016, in exchange for 64,666,667 shares of CMTH restricted common
stock valued at $100,000. CMH holds a significant amount of the Company’s common stock. The patent expires in 2025 and the
Company has elected to amortize the patent over a ten-year period on a straight line basis. Amortization expense of
$9,972
was recorded for the year ended December 31, 2018. As of December 31, 2018, the carrying value of the patent was
$70,904
.
The Company expects to amortize
$9,972
annually through 2025 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 license was acquired for a cash payment
of $5,000, issuance of 323,333 shares of restricted common stock of the Company (valued at $1,000, which is the par value of $0.01
per share), and an agreement to reimburse LABIOMED up to $1,800 for expenses incurred by LABIOMED in reviving and defending their
patent. The Company has expensed the cash paid, the value of the stock issued, and the expected reimbursement of $1,800 for a total
intangible royalty expense – license fees of $7,800.
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 three years
after the date of the agreement, 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 December
31, 2018,
$0
are currently due to LABIOMED.
Multipotent Amniotic Fetal Stem Cells
License Agreement -
On August 25, 2016, CMT entered into a License Agreement dated August 25, 2016, 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. The license agreement also permits CMT to grant sublicenses. Under the terms of the license agreement,
CMT is required to diligently develop, manufacture, and sell any products licensed under the agreement. 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 December 31, 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
$1,172
was recorded for the year ended December 31, 2018. As of December 31, 2018, the carrying value of the
patent was
$7,601
. 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
$10,000
was recorded for the year ended December 31,
2018. As of December 31, 2018, the carrying value of the patent was
$85,000
. The company expect 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.
As of December 31, 2018, future expected amortization
of these assets is as follows:
For the year ended December 31,
|
|
|
|
|
|
|
|
2019
|
|
|
21,144
|
|
2020
|
|
|
21,144
|
|
2021
|
|
|
21,144
|
|
2022
|
|
|
21,144
|
|
2023
|
|
|
21,144
|
|
Thereafter
|
|
|
57,785
|
|
Total
|
|
$
|
163,505
|
|
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 December
31, 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 December 31, 2017, amounts due to CMH under the arrangement
were
$198,082
.
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 Timothy Warbington, our CEO, Chairman, and principal shareholder, and Creative Medical Health,
Inc., the parent of the Company, whereby Mr. Warbington cancelled $150,000 of debt owed by CMH to him in return for which he would
receive 3,000,000 shares of Series A Preferred Stock which CMH agreed to receive in return for cancellation of
$150,000
of debt owed by us to CMH for management reimbursement costs.
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. As of December
31, 2018, accrued, unpaid interest was
$0
. As of December 31, 2017, accrued interest was
$8,236
.
On April 11, 2018 CMH converted
$136,003
of principal and accrued interest into
9,855,290
common shares. As of December 31, 2018, the Company had fulfilled all the
obligations of the notes.
On August 12, 2016, CMH advanced the Company
$2,000 for operations. The amount is due on demand and does not incur interest.
On May 17, 2017, StemSpine, LLC (“ StemSpine
”), a newly formed Nevada limited liability company and wholly owned subsidiary of Creative Medical Technologies, Inc. (“
CMT ”), the wholly owned subsidiary of the Company, entered into a Patent Purchase Agreement dated May 17, 2017 (the “
Agreement ”), with Creative Medical Holdings, Inc. (“ CMH ”). Under the terms of the Agreement, StemSpine acquired
U.S. Patent No. 9,598,673 covering use of various stem cells for treatment of lower back pain (the “ Patent ”). On
or before June 29, 2017, StemSpine agreed to pay CMH $100,000 for the Patent. Under the terms of the Agreement, StemSpine also
agreed for a period of five years from the date of the first sale of any product derived from the Patent to make royalty payments
of 5% from gross sales of such 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 agreed to make progress payments under
the 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 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 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, except for the initial payment of $100,000 on or before June 29,
2017, StemSpine has the option to make these payments in cash or in shares of the Company’s common stock at a 30% discount
to the market price of the stock at the time of the transaction. The parties to the Agreement have agreed that in no event will
the aggregate royalty payments under the Agreement exceed $2,500,000.
On November 14, 2017, StemSpine, entered into
an amendment to the Patent Purchase Agreement dated May 17, 2017 (the “ Amendment ”). The Amendment waives the nonpayment
by StemSpine of the initial payment of $100,000 to CMH which was due and payable 30 business days following the date of the agreement.
The Amendment further amends the payment terms of the initial payment to be made upon 30 days’ prior written demand of CMH
and the payment of the progress payments to be made upon 30 days’ prior written demand of CMH, following achievement of the
designated milestones. The initial payment, the progress payments, and the royalties are payable by StemSpine in cash or Company
stock, at the option of CMH. Stock payments are to be made at a discount of 30% to the market price of the Company’s common
stock, based on lowest closing price of the stock during the 20 trading days prior to the date of demand for payment. In the event
the trading price is less than $0.01 per share for two or more consecutive trading days, the number of any shares issuable doubles.
CMH has the right to terminate the agreement upon 10 days’ notice if StemSpine fails to make its required payments.
See Note 2 for discussion of an additional
related party transaction with CMH.
NOTE 4 – DEBT
$100,000 Loan – Baldanegro –
Loan 4
On April 13, 2017, the Company received a loan
from an accredited investor in the face amount of $100,000, for which $90,000 in proceeds were received. The loan is evidenced
by a promissory note dated April 13, 2017, which bears interest at 12% and which matures on October 13, 2018. In addition, at maturity
the Company must pay 125% of principal and interest at maturity. The promissory note is secured by 400,000 shares of common stock
held by the lender. On November 1, 2018 the note was amended to include a conversion feature. The convertible note is convertible
upon the amendment date and convertible into shares of the Company’s stock at a conversion price equal to 80% of the lowest
traded price of the Company’s common stock during the previous 20 trading days preceding the conversion date. We are negotiating
with the investor to extend the maturity date of the note. The Company amortized the on-issuance discount of $35,000 to interest
expense using the straight-line method over the original term of the loan. During the years ended December 31, 2018 and 2017 the
Company amortized
$0
and
$35,000
to interest expense respectively. As of December 31, 2018, a discount of
$0
remained.
$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 years ended December 31, 2018 and 2017 the Company amortized
$54,085
and
$45,915
to interest expense respectively. As of December 31, 2018, a discount of $0 remained. During
the years ended December 31, 2018 and 2017, the lender converted
$54,200
of principal into
23,485,183
shares of common
stock and
$45,000
of principal into
5,357,142
shares of common stock respectively. On March 23, 2018, the Company
paid the lender $1,000 to extinguish the remaining principal balance. As of December 31, 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 years ended December 31, 2018
and 2017, the Company amortized $4,600 and $110,400 to interest expense respectively. As of December 31, 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 years ended December 31, 2018 and 2017, the lender converted
$134,812
of
principal, interest and fees into
145,929,641
common shares and converted
$13,110
of principal, interest and fees
into
1,295,000
common shares respectively. As of December 31, 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 years ended December 31, 2018 and 2017 the Company amortized
$17,863
and
$37,137
to interest expense respectively. As of December 31, 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 years ended December 31, 2018 and 2017, the lender converted
$47,613
of
principal, interest and fees into
31,442,665
common shares and
$6,000
of principal, interest and fees into
666,667
common shares respectively. As of December 31, 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 June 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 is convertible upon issuance and convertible into shares of the Company’s stock
at a conversion price equal to or greater than $0.25 or a conversion price equal to 60% of the average closing trading price of
the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company has pledged 200,000
shares of common stock as security on the note. The Company recorded a discount of $40,681 due to the recording of a derivative
liability as discussed in Note 5. The Company amortized the total discount of $40,681 to interest expense using the straight-line
method over the term of the loan. During the years ended December 31, 2018 and 2017, the Company amortized
$0
and
$40,681
to interest expense respectively. As of December 31, 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 exercise the Stock Power granted and have the stock certificate representing the pledged stock transferred into the holder
or its broker’s name.
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. 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 ten times the number of common shares the convertible note is convertible into. In conjunction with the issuance of the
note, the Company issued 166,667 five-year warrants to purchase common stock at $0.30 per share to the note issuer. The Company
is amortizing the on-issuance discount of $5,000 and legal processing fees of $2,000 and the remaining discount of $43,000 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $50,000 to interest
expense using the straight-line method over the term of the loan. During the years ended December 31, 2018 and 2017 the Company
amortized
$27,397
and
$22,603
respectively to interest expense. As of December 31, 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 December 31, 2018, there were
333,470,447
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 default interest
rate would increase to the lesser of 12% or the maximum amount allowable under the applicable law.
The Company has the option to redeem the convertible
notes within 60 days from the date of issuance at 120% of the principal and interest; between 61 and to 120 days from the date
of issuance at 135% of the principal and interest; between 61 days and 90 days from the date of issuance at 125% of the principal
and interest; between 121 days and to 180 days from the date of issuance at 150% of the principal and interest; and after 180 days
the right of prepayment expires.
During the year ended December 31, 2018, the
lender converted
$52,247
of principal, interest and fees into
56,453,381
common shares. As of December 31, 2018,
the Company had fulfilled all the obligations of the note.
$55,000 Convertible Note – Fourth Man
– Note 10
On August 31, 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 September 1, 2017. Under the terms of the agreement, the convertible note incurs interest at 22% per annum and has
a maturity date of August 31, 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 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 the
on-issuance discount of $5,000 and legal processing fees of $2,500 and the remaining discount of $47,500 due to the recording of
a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $55,000 to interest expense using
the straight-line method over the term of the loan. During the years ended December 31, 2018 and 2017 the Company amortized
$36,617
and
$18,384
to interest expense respectively. As of December 31, 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 December 31, 2017, there were
26,250,105
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 decrease the conversion price equal to 45% of the lowest trading price of the Company’s common
stock during the previous 20 trading days preceding the conversion date. 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 days and 90 days from the date of issuance at 125% of the principal
and interest; between 91days and to 120 days from the date of issuance at 130% of the principal and interest; between 121 days
and to 180 days from the date of issuance at 135% of the principal and interest; and after 180 days the right of prepayment expires.
During the year ended December 31, 2018, the
lender converted
$58,622
of principal, interest and fees into
40,198,612
common shares. As of December 31, 2018,
the Company had fulfilled all the obligations of the note.
$30,250 Convertible Note – Morningview
– Note 11
On October 23, 2017, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $30,250, for which $25,000 in proceeds were
received on October 30, 2017. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a
maturity date of October 23, 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 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 five times the number of common shares the convertible note is convertible into. The Company is amortizing the on-issuance
discount of $2,750 and legal processing fees of $2,500 and the remaining discount of $25,000 due to the recording of a derivative
liability as discussed in Note 5. The Company is amortizing the total discount of $30,250 to interest expense using the straight-line
method over the term of the loan. During the year ended December 31, 2018 and 2017 the Company amortized
$24,532
and
$5,718
to interest expense respectively. As of December 31, 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 December 31, 2018, there were
3,107,186
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 150% multiplied by the then outstanding entire balance of the note, including
principal and accrued unpaid interest.
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.
During the years ended December 31, 2018 and
2017, the lender converted
$32,258
of principal, interest and fees into
11,200,820
common shares and
$7,000
of principal, interest and fees into
1,166,667
common shares respectively. As of December 31, 2018, the Company had fulfilled
all the obligations of the note.
$58,000 Convertible Note – Power Up –
Note 12
On November 27, 2017, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $58,000, for which $55,000 in proceeds were
received on December 1, 2017. Under the terms of the agreement, the convertible note incurs interest at 12% per annum and has a
maturity date of November 27, 2018. 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 six 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 $55,000 due to the recording of a derivative liability as discussed
in Note 5. The Company is amortizing the total discount of $58,000 to interest expense using the straight-line method over the
term of the loan. During the years ended December 31, 2018 and 2017 the Company amortized
$52,597
and
$5,403
to interest
expense respectively. As of December 31, 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 December 31, 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 150% multiplied by the then outstanding entire balance of the note, including
principal and accrued unpaid interest.
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 days and 90 days from the date of issuance at 125% of the principal
and interest; between 91days and to 120 days from the date of issuance at 130% of the principal and interest; between 121 days
and to 150 days from the date of issuance at 135%, between 121 days 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.
On April 26, 2018 the Company retired the note
with a payment of
$82,084
to the note holder. A derivative liability gain of
$300,904
and a premium loss of
$21,109
were recorded to reflect the retirement of the loan.
$30,000 Convertible Note – Power Up –
Note 13
On December 18, 2017, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $30,000, for which $27,000 in proceeds were
received on December 18, 2017. Under the terms of the agreement, the convertible note incurs interest at 12% per annum and has
a maturity date of December 18, 2018. 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 six 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 $27,000 due to the recording of a derivative liability as discussed
in Note 5. The Company is amortizing the total discount of $30,000 to interest expense using the straight-line method over the
term of the loan. During the years ended December 31, 2018 and 2017 the Company amortized
$28,685
and
$1,315
to interest
expense respectively. As of December 31, 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 December 31, 2017, 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 150% multiplied by the then outstanding entire balance of the note, including
principal and accrued unpaid interest.
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 days and 90 days from the date of issuance at 125% of the principal
and interest; between 91days and to 120 days from the date of issuance at 130% of the principal and interest; between 121 days
and to 150 days from the date of issuance at 135%, between 121 days 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.
On May 3, 2018 the Company retired the note
with a payment of
$42,311
to the note holder. A derivative liability gain of
$131,488
and a premium loss of
$10,940
were recorded to reflect the retirement 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 December 31, 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 year ended December 31, 2018, the
lender converted
$32,744
of principal, interest and fees into
5,350,345
common shares. As of December 31, 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 year ended December 31,
2018 the Company amortized
$40,324
to interest expense. 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 December 31, 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 year ended December 31, 2018, the
lender converted
$44,000
of principal, interest and fees into
27,518,485
common shares. As of December 31, 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 notes 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 year-ended December 31, 2018. As of
December 31, 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. As of December 31, 2018, there were
48,348,982
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
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 year ended December 31, 2018, the
lender converted
$12,925
of principal, interest and fees into
2,111,873
common shares. As of December 31, 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
six
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 year ended December 31, 2018 the Company amortized
$53,000
to interest expense. As of December
31, 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 December 31, 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 May 17, 2018 the Company retired the note
with a payment of
$68,080
to the note holder. A derivative liability gain of $
55,004
and a premium loss of
$13,494
were recorded to reflect the retirement of the loan.
$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 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
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 year ended December 31, 2018 the Company amortized
$27,500
to interest expense. As of December 31, 2018, a discount
of $
0
remained. At no additional cost, we issued to the note holder
2,750,000
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 December 31, 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 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 year ended December 31, 2018 and
2017, the lender converted
$28,344
of principal, interest and fees into
4,631,346
common shares. As of December 31,
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. 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. At no additional cost, we issued to the note holder
30,000,000
five-year warrants
to purchase common stock at
$0.0026
, 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 December 31, 2018, there were
97,130,286
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 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 year ended December 31, 2018, the
lender converted
$60,147
of principal, interest and fees into
45,665,203
common shares. As of December 31, 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 year ended December 31, 2018 the Company amortized
$115,000
to interest expense. As of December 31, 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 December 31, 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 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.
On August 8, 2018, the Company retired the
note and accrued interest with a payment of
$106,312
to the note holder.
$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
four
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 year ended December 31, 2018, the Company amortized
$48,000
to interest expense. As of December 31,
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 December 31, 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
$220,537
and a premium loss of
$11,461
were
recorded to reflect the retirement of the note.
$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 April 1, 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 year ended December 31, 2018, the Company amortized
$81,973
to interest expense. As of December 31, 2018, a discount
of
$28,027
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 December 31, 2018, there were
145,193,000
shares reserved with our transfer agent with a potential
of
84,426,614
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 year ended December 31, 2018, the Company amortized
$79,562
to interest expense. As of December
31, 2018, a discount of
$30,438
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 December 31, 2018, there were
58,333,333
shares reserved with our transfer agent
with a potential of
50,552,642
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 April 1, 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 year ended December 31, 2018 the Company amortized
$110,000
to interest expense. As of December
31, 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 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 December 31, 2018, there were
41,996,294
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 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.
During the year ended December 301 2018, the
lender converted
$115,000
of principal, interest and fees into
11,967,158
common shares. As of December 31, 2018,
the Company had fulfilled all the obligations of the note.
$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 year ended December 31, 2018 the Company amortized
$68,351
to interest expense. As of December
31, 2018, a discount of
$39,649
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 December 31, 2018, there were
9,944,425
shares reserved with our transfer agent
with a potential of
38,012,618
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.
During the year ended December 301 2018, the
lender converted
$20,000
of principal, interest and fees into
4,115,226
common shares.
$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 year ended December 31, 2018 the Company amortized
$8,000
and to interest expense. 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 December 31, 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 year ended December 31, 2018, the Company amortized
$1,500
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 December 31, 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, the lender 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 year ended December 31, 2018 the Company amortized
$51,210
to interest expense. As of December
31, 2018, a discount of $
132,040
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 December 31, 2018, there were
25,000,000
shares reserved with our transfer agent
with a potential of
80,412,000
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. After
30 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 year ended December 31, 2018, the Company amortized
$51,210
to interest expense. As of December 31, 2018, a discount of
$132,040
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 December 31, 2018, there were
25,000,000
shares reserved with our transfer agent
with a potential of
80,412,000
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 30
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 year ended December 31, 2018, the Company amortized
$51,210
to interest expense. As of December 31, 2018, a discount of
$132,040
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 December 31, 2018, there were
25,000,000
shares reserved with our transfer agent
with a potential of
80,412,000
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.
$108,000 Convertible Note – Global
– Note 31
On November 15, 2018, the Company entered into
a convertible 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 convertible note incurs interest at
8%
per annum and has a maturity date
of November 15, 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 70% 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
$19,065
and the remaining discount of
$74,579
due to the recording
of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of
$93,644
to interest expense
using the straight-line method over the term of the loan. During the year ended December 31, 2018 the Company amortized
$23,603
to interest expense. As of December 31, 2018, a discount of
$70,041
remained. At no additional cost, we issued to the note
holder
1,985,294
five-year warrants to purchase common stock at
$0.0272
, 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 December 31, 2018, there were
15,000,000
shares reserved with our transfer agent
with a potential of
46,752,376
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.
$108,000 Convertible Note – Morningview
– Note 32
On November 15, 2018, the Company entered into
a convertible 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 convertible note incurs interest at
8%
per annum and has a maturity date
of November 15, 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 70% 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
$14,040
and the remaining discount of
$83,249
due to the recording
of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of
$97,289
to interest expense
using the straight-line method over the term of the loan. During the year ended December 31, 2018 the Company amortized
$24,522
to interest expense. As of December 31, 2018, a discount of
$72,767
remained. At no additional cost, we issued to the note
holder
1,985,294
five-year warrants to purchase common stock at
$0.0272
, 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 December 31, 2018, there were
15,000,000
shares reserved with our transfer agent
with a potential of
46,752,376
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.
$108,000 Convertible Note – Fourth
Man – Note 33
On November 15, 2018, the Company entered into
a convertible 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 convertible note incurs interest at
7%
per annum and has a maturity date
of November 15, 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 70% 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
$14,040
and the remaining discount of
$83,249
due to the recording
of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of
$97,289
to interest expense
using the straight-line method over the term of the loan. During the year ended December 31, 2018 the Company amortized
$24,522
to interest expense. As of December 31, 2018, a discount of
$72,767
remained. At no additional cost, we issued to the note
holder
1,985,294
five-year warrants to purchase common stock at
$0.0272
, 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 December 31, 2018, there were 15,000,000 shares reserved with our transfer agent with
a potential of
46,752,376
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.
$168,300 Convertible Note – Power
Up – Note 34
On November 15, 2018, the Company entered into
a convertible note agreement with a third party for an aggregate principal amount of $168,300, for which $150,000 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 April 1, 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
$15,300
, legal fees of
$3,000
and the remaining discount of
$92,917
due to the recording of a derivative liability
as discussed in Note 5. The Company is amortizing the total discount of
$111,217
to interest expense using the straight-line
method over the term of the loan. During the years ended December 31, 2018 and 2017 the Company amortized
$28,033
and
$0
to interest expense respectively. As of December 31, 2018, a discount of
$83,184
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 December 31, 2018, there were
126,422,535
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 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.
During 2018, the Company incurred
$87,132
in pre-payment premiums associated with the extinguishment of
$265,142
in principal that was recorded as interest expense.
As of December 31, 2018, future loan maturities
are as follows:
For the year ended December 31,
|
|
|
|
|
|
|
|
|
2019
|
|
|
1,475,650
|
|
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 year ended December 31, 2018, the Company recorded initial
derivative liabilities of
$4,186,812
based upon the following Black-Scholes option pricing model average assumptions: an
exercise price of
$0.0009
to
$0.0880
our stock price on the date of grant of
$0.0029
to
$0.0270
, expected
dividend yield of
0%
, expected volatility of
86.44%
to
195.00%
, risk free interest rate of
2.03%
to
2.94%
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 December 31, 2018, the derivative liabilities
were revalued at
$3,227,382
resulting in a loss of
$3,627,422
related to the change in fair market value of the derivative
liabilities. 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
$0.0099
, expected dividend
yield of 0%, expected volatility of
88.48%
to
90.50%
, risk-free interest rate of
2.45%
to
2.63%
, and
expected terms ranging from
0.50
to
4.88
years.
Future Potential Dilution
Most of the Company’s convertible notes
payable contain adjustable conversion terms with significant discounts to market. As of December 31, 2018, the Company’s
convertible notes payable are potentially convertible into an aggregate of approximately
197.8
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 – STOCK-BASED COMPENSATION
The Company has reserved 2,000,000 shares under
its 2016 Stock Incentive Plan (the “
Plan
”). The Plan was adopted by the board of directors on May 18, 2016,
as a vehicle for the recruitment and retention of qualified employees and consultants. The Plan is administered by the Board of
Directors. The Company may issue, to eligible employees or contractors, restricted common stock, options, stock appreciation rights
and restricted stock units. The terms and conditions of awards under the Plan will be determined by the Board of Directors.
In July and September 2016, the Company granted
10-year options to two parties for accepting appointment to the Company’s scientific advisory board. Each award consisted
of options to purchase up to 250,000 shares at $0.175 per share. The options vest at a rate of 50,000 on each anniversary date
of the respective grants. The options are accounted for as non-employee stock options and thus revalued for reporting purposes
at the end of each quarter. During 2018 the fair market value of the options was insignificant to the financial statements.
The fair value of each option award is estimated
using the Black-Scholes valuation model. Assumptions used in calculating the fair value during the year ended December 31, 2017
were as follows:
|
|
Weighted
Average
Inputs Used
|
|
|
|
|
|
Annual dividend yield
|
|
$
|
-
|
|
Expected life (years)
|
|
|
6.05-6.24
|
|
Risk-free interest rate
|
|
|
2.01
|
%
|
Expected volatility
|
|
|
82.97
|
%
|
Common stock price
|
|
$
|
0.0135
|
|
Since the expected life of the options was
greater than the Company’s historical stock information available, the Company determined the expected volatility based on
price fluctuations of comparable public companies.
Stock based compensation for the year ended
December 31, 2017 was
$1,877
, and included with general and administrative expenses. As of December 31, 2018, future estimated
stock-based compensation expected to be recorded was estimated to be
$0.
Option activity for the year ended December
31, 2018 consists of the following:
|
|
Stock Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Life Remaining
|
|
Outstanding, December 31, 2016
|
|
|
500,000
|
|
|
$
|
0.18
|
|
|
|
9.65
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2017
|
|
|
500,000
|
|
|
$
|
0.18
|
|
|
|
8.65
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2018
|
|
|
500,000
|
|
|
$
|
0.18
|
|
|
|
7.65
|
|
Vested, December 31, 2018
|
|
|
200,000
|
|
|
$
|
0.18
|
|
|
|
7.65
|
|
There were no options issued during the year
ended December 31, 2018.
See Note 2 for discussion related to the issuance
of common stock in connection with licensing agreements. See Note 4 and 5 for discussion regarding warrants issued with a convertible
note payable.
NOTE 7 – STOCKHOLDERS’ DEFICIT
In March 2017, the Company sold 1,000,000 shares
to an accredited investor resulting in proceeds of $100,000 and the issuance of a 2.35 year warrant to purchase 100,000 shares
of common stock at $0.10 per share. The fair value of the warrants of $5,546 was estimated using the Black-Scholes valuation model.
The warrants were classified as equity as they were issued in connection with a capital raise.
On May 8, 2017, the Company entered into a
convertible loan agreement with a third party that included 200,000 5-year warrants to purchase a share of common stock at $0.25
per share. On the date of issuance, the Company accounted for the conversion feature on the warrants as derivative liabilities,
see Note 5. Derivative accounting applies as the number of warrants and the conversion price are variable and do not have a floor
as to the number of common shares in which could be converted. For the year ended December 31, 2017 the initial issuance of 200,000
warrants was increased to 11,956,522 to reflect the terms of the warrant agreement.
On July 19 2017, the Company entered into a
convertible loan agreement with a third party that included 166,667 5-year warrants to purchase a share of common stock at $0.30
per share. On the date of issuance, the Company accounted for the conversion feature on the warrants as a derivative liabilities,
see Note 5. Derivative accounting applies as the number of warrants and the conversion price are variable and do not have a floor
as to the number of common shares in which could be converted. For the year ended December 31, 2017 the initial issuance of 166,667
warrants was increased to 10,869,565 to reflect the terms of the warrant agreement.
Assumptions used in calculating the fair value
of the warrants issued in 2017 were as follows:
|
|
Range of
|
|
|
|
Inputs Used
|
|
Annual dividend yield
|
|
$
|
-
|
|
Expected life (years)
|
|
|
2.36 to 5.00
|
|
Risk-free interest rate
|
|
|
0.86% to 2.01
|
%
|
Expected volatility
|
|
|
78.71% to 98.38
|
%
|
Common stock price
|
|
$
|
.0135 to 0.1000
|
|
On March 9, 2018, the Company entered into
a convertible loan agreement with a third party that included
2,750,000
5-year warrants to purchase a share of common stock
at
$0.01
per share. On the date of issuance, the Company accounted for the conversion feature on the warrants as derivative
liabilities, see Note 5. Derivative accounting applies as the number of warrants and the conversion price are variable and do not
have a floor as to the number of common shares in which could be converted. For the year ended December 31, 2018 the initial issuance
of
2,750,000
warrants was increased to
32,738,095
to reflect the terms of the warrant agreement. For the year ended
December 31, 2018
32,738,095
warrants were converted into 25,688,000 common shares through cashless conversions. As of December
31, 2018,
0
warrants remained.
On March 9, 2018, the Company entered into
a convertible loan agreement with a third party that included
30,000,000
5-year warrants to purchase a share of common stock
at
$0.0026
per share. On the date of issuance, the Company accounted for the conversion feature on the warrants as derivative
liabilities, see Note 5. Derivative accounting applies as the number of warrants and the conversion price are variable and do not
have a floor as to the number of common shares in which could be converted. For the year ended December 31, 2018 the initial issuance
of
30,000,000
warrants was increased to
92,857,142
to reflect the terms of the warrant agreement. For the year ended
December 31, 2018
92,857,142
warrants were converted into common shares through cashless conversions. As of December 31,
2018,
0
warrants remained.
On April 3, 2018, the Company entered into
a convertible loan agreement with a third party that included
11,000,000
5-year warrants to purchase a share of common stock
at $0.01 per share. On the date of issuance, the Company accounted for the conversion feature on the warrants as derivative liabilities,
see Note 5. Derivative accounting applies as the number of warrants and the conversion price are variable and do not have a floor
as to the number of common shares in which could be converted. For the year ended December 31, 2018 the initial issuance of
11,000,000
warrants was increased
94,889,717
to reflect the terms of the warrant agreement. For the year ended December 31, 2018
69,010,704
warrants were converted into common shares through cashless conversions. As of December 31, 2018,
25,879,013
warrants remained.
On April 11, 2018, the Company entered into
a convertible loan agreement with a third party that included
11,000,000
5-year warrants to purchase a share of common stock
at $0.01 per share. On the date of issuance, the Company accounted for the conversion feature on the warrants as derivative liabilities,
see Note 5. Derivative accounting applies as the number of warrants and the conversion price are variable and do not have a floor
as to the number of common shares in which could be converted. For the year ended December 31, 2018 the initial issuance of
11,000,000
warrants was increased
94,037,964
to reflect the terms of the warrant agreement. For the year ended December 31, 2018
20,000,000
warrants were converted into common shares through cashless conversions. As of December 31, 2018,
74,037,964
warrants remained.
On May 14, 2018, the Company entered into
a convertible loan agreement with a third party that included
3,600,000
5-year warrants to purchase a share of common stock
at
$0.0026
per share. On the date of issuance, the Company accounted for the conversion feature on the warrants as derivative
liabilities, see Note 5. Derivative accounting applies as the number of warrants and the conversion price are variable and do
not have a floor as to the number of common shares in which could be converted. For the year ended December 31, 2018 the initial
issuance of
3,600,000
warrants was increased
67,828,571
to reflect the terms of the warrant agreement. For the year
ended December 31, 2018
58,200,000
warrants were converted into common shares through cashless conversions. As of December
31, 2018,
13,228,571
warrants remained.
On September 13, 2018, the Company entered
into a convertible loan agreement with three accredited third party investors that included
3,742,854
5-year warrants to
purchase a share of common stock at
$0.0880
per share. On the date of issuance, the Company accounted for the conversion
feature on the warrants as derivative liabilities, see Note 5. Derivative accounting applies as the number of warrants and the
conversion price are variable and do not have a floor as to the number of common shares in which could be converted.
On November 15, 2018, the Company entered into
a convertible loan agreement with three accredited third party investors that included
5,955,882
5-year warrants to purchase
a share of common stock at
$0.0272
per share. On the date of issuance, the Company accounted for the conversion feature
on the warrants as derivative liabilities, see Note 5. Derivative accounting applies as the number of warrants and the conversion
price are variable and do not have a floor as to the number of common shares in which could be converted.
Assumptions used in calculating the fair value
of the warrants issued in 2018 were as follows:
|
|
Range of
|
|
|
|
Inputs Used
|
|
Annual dividend yield
|
|
$
|
-
|
|
Expected life (years)
|
|
|
5.00
|
|
Risk-free interest rate
|
|
|
2.03% to 2.94
|
%
|
Expected volatility
|
|
|
89.93% to 195.00
|
%
|
Common stock price
|
|
$
|
0.0029 to 0.0270
|
|
Warrant activity for the year ended December
31, 2018 consists of the following:
|
|
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Life Remaining
|
|
Outstanding, December 31, 2016
|
|
|
500,000
|
|
|
$
|
0.1000
|
|
|
|
2.82
|
|
Issued
|
|
|
22,926,087
|
|
|
|
0.0046
|
|
|
|
4.43
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2017
|
|
|
23,426,087
|
|
|
$
|
0.0070
|
|
|
|
4.40
|
|
Issued
|
|
|
68,048,736
|
|
|
|
0.0120
|
|
|
|
|
|
Exercises
|
|
|
(336,509,121
|
)
|
|
|
0.0011
|
|
|
|
|
|
Anti-Dilution Modifications
|
|
|
402,310,417
|
|
|
|
0.0011
|
|
|
|
-
|
|
Forfeiture/Cancellations
|
|
|
(15,200,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2018
|
|
|
142,075,119
|
|
|
$
|
0.0047
|
|
|
|
4.22
|
|
Vested, December 31, 2018
|
|
|
142,075,119
|
|
|
$
|
0.0047
|
|
|
|
4.22
|
|
See Note 2 for discussion related to the issuance
of common stock in connection with licensing agreements.
See Note 3 for discussion related to the issuance
of common stock to a related party for cash.
NOTE 8 – INCOME TAXES
The provision for income tax expense consists
of the following at December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Income tax provision attributable to:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
248,516
|
|
|
$
|
(691,368
|
)
|
State and local
|
|
|
(234,666
|
)
|
|
|
(212,729
|
)
|
Valuation allowance
|
|
|
(13,850
|
)
|
|
|
904,097
|
|
Net provision for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax assets consists of the following
at December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
$
|
1,052,992
|
|
|
$
|
950,361
|
|
Accrued management fees, related party
|
|
|
26,319
|
|
|
|
142,800
|
|
Valuation allowance
|
|
|
(1,079,311
|
)
|
|
|
(1,093,161
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The primary difference between the statutory
federal rate and the Company’s effective tax rate for the year ended December 31, 2017 was due to the 100% valuation allowance.
The following is a reconciliation of the statutory federal rate and the Company’s effective tax rate for the year ended December
31, 2018:
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Tax at federal statutory rate
|
|
$
|
34.0
|
%
|
|
|
|
|
State, net of federal benefit
|
|
|
1.7
|
%
|
|
|
|
|
Change in temporary differences
|
|
$
|
(3.1
|
)%
|
|
|
|
|
Permanent differences
|
|
|
(28.9
|
)%
|
|
|
|
|
Valuation allowance
|
|
|
(3.7
|
)%
|
|
|
|
|
Provision for taxes
|
|
$
|
-
|
|
|
|
|
|
As of December 31, 2018, the Company had federal
and state gross net operating loss carryforwards of approximately $3.9 million. The federal and state net operating losses and
tax credits expire in years beginning in 2036. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended,
or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change
net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income
may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent
shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax
laws. To date, the Company hasn’t experienced “ownership changes” under section 382 of the Code and comparable
state tax laws. As of December 31, 2018, the Company estimates that none of the federal and state net operating losses will be
limited under Section 382 of the Code.
As of December 31, 2018 and 2017, the Company
maintained a full valuation allowance on its net deferred tax assets. The valuation allowance was determined in accordance with
the provisions of ASC 740, Accounting for Income Taxes, which requires an assessment of both positive and negative evidence when
determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction
by jurisdiction basis. The Company’s history of cumulative losses, along with expected future U.S. losses required that a
full valuation allowance be recorded against all net deferred tax assets. The Company intends to maintain a full valuation allowance
on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.
The applicable federal and state rates used
in calculating the deferred tax provision was 21% and 8.84%, respectively. The Tax Cuts and Jobs Act reduced the federal corporate
tax rate used in calculating the deferred income tax liability from 35% to 21%, as a result the Company has deferred income tax
liabilities for this reduction. This resulted in a one-time reduction of $522,875 to the income tax provision for the year ended
December 31, 2018.
The Company files income tax returns in the
U.S. and Arizona. All years presented remain subject to examination for U.S. federal and state purposes. The Company is not currently
under examination in federal or state jurisdictions.
NOTE 9 – SUBSEQUENT EVENTS
Warrant Exchange
On February 28, 2019, the Company”
entered into three separate Exchange Agreements (each, an “Exchange Agreement”) with the holders (the “Warrant
Holders”) of Common Stock Purchase Warrants issued by the Company in September 2018 and November 2018. Under each Exchange
Agreement, the Company issued a convertible promissory note in the principal amount of $100,000 (an “Exchange Note”)
to the Warrant Holder party to such Exchange Agreement in exchange for the cancellation of Common Stock Purchase Warrants held
by such Warrant Holder, initially exercisable for an aggregate of 3,232,912 shares of the Company’s common stock. The exchanges
were effected pursuant to Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder.
Each Exchange Note matures on February
28, 2020, bears interest at a rate of 8% per annum, and beginning 31 days after the closing date, is convertible into shares of
the Company’s common stock at a conversion price equal to 65% of the Market Price of the common stock. “Market Price”
as defined in each Exchange Note means the average of the two lowest “VWAPs” (as defined) of the Company’s common
stock during the 15 trading days preceding the applicable conversion date.
Note and Warrant Purchase
On March 1, 2019, the Company completed
the sale of Convertible Notes (“Notes”) and Common Stock Purchase Warrants (“Warrants”) to four institutional
investors (the “Investors”) pursuant to a Securities Purchase Agreement between the Company and the Investors (the
“Purchase Agreement”) dated as of February 19, 2019. The transaction was effected pursuant to Section 4(a)(2) of the
Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder.
Pursuant to the Purchase Agreement,
for a purchase price of $100,000.00, each Investor purchased a Note in the principal amount of $110,000.00 and a Warrant to purchase
1,334,951 shares of common stock. Each Note matures on March 1, 2020, bears interest at a rate of 8% per annum, and beginning 31
days after the closing date, is convertible into shares of the Company’s common stock at a conversion price equal to 65%
of the Market Price of the common stock. “Market Price” as defined in each Exchange Note means the average of the two
lowest “VWAPs” (as defined) of the Company’s common stock during the 15 trading days preceding the applicable
conversion date. In addition, the Notes are subject to covenants, events of defaults and other terms and conditions customary in
transactions of this nature.
Each Warrant is exercisable for a five-year
period at an initial exercise price of $0.0206 per share, subject to anti-dilution adjustment in the event of stock dividends,
stock splits and other specified events.