UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________ |
Commission File Number:000-53500
Creative Medical Technology Holdings, Inc.CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 87-0622284 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 85029 | ||
| (Address of principal executive offices) | (Zip Code) |
(833) 336-7636
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Indicate by check mark whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports).
Yesx No¨
Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days.
Yesx No¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yesx No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | x | Smaller reporting company | x |
| Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨ Nox
The number of shares outstanding of the registrant’s common stock on November 14, 2018,2019, was 830,514,426.2,458,101,337.
i
PART I – FINANCIAL INFORMATION
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2019 | December 31, 2018 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 158,236 | $ | 304,056 | ||||
| Accounts receivable | 24,500 | 9,600 | ||||||
| Total Current Assets | 182,736 | 313,656 | ||||||
| OTHER ASSETS | ||||||||
| Licenses, net of amortization | 147,647 | 163,505 | ||||||
| TOTAL ASSETS | $ | 330,383 | $ | 477,161 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 323,801 | $ | 331,838 | ||||
| Accrued expenses | 65,275 | 21,640 | ||||||
| Management fee payable - related party | 53,082 | 198,082 | ||||||
| Convertible notes payable, net of discount of $636,368 and $792,994, respectively | 896,246 | 682,056 | ||||||
| Advances from related party | 10,800 | 10,800 | ||||||
| Derivative liabilities | 2,544,160 | 3,227,382 | ||||||
| Total Current Liabilities | 3,893,364 | 4,471,798 | ||||||
| TOTAL LIABILITIES | 3,893,364 | 4,471,798 | ||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock, $0.001 par value, 7,000,000 and 7,000,000 shares authorized, no shares issued and outstanding at September 30, 2019 and December 31, 2018 | - | - | ||||||
| Series A preferred stock, $0.001 par value, 3,000,000 shares authorized, 3,000,000 shares issued and outstanding at September 30, 2019 and December 31, 2018 | 3,000 | 3,000 | ||||||
| Common stock, $0.001 par value, 3,000,000,000 and 3,000,000,000 shares authorized; 2,109,074,289 and 903,311,370 issued and 2,108,474,289 and 902,711,370 outstanding at September 30, 2019 and December 31, 2018, respectively | 2,108,474 | 902,711 | ||||||
| Additional paid-in capital | 14,698,601 | 12,180,985 | ||||||
| Accumulated deficit | (20,373,056 | ) | (17,081,333 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (3,562,981 | ) | (3,994,637 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 330,383 | $ | 477,161 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements
| 1 |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS
| September 30, 2018 | December 31, 2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 172,832 | $ | 13,697 | ||||
| Accounts receivable | 14,000 | 4,801 | ||||||
| Total Current Assets | 186,832 | 18,498 | ||||||
| OTHER ASSETS | ||||||||
| Licenses, net of amortization | 168,791 | 184,649 | ||||||
| TOTAL ASSETS | $ | 355,623 | $ | 203,147 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 242,843 | $ | 237,566 | ||||
| Accrued expenses | 29,640 | 23,140 | ||||||
| Management fee payable - related party | 269,050 | 352,750 | ||||||
| Convertible notes payable, net of discount of $773,641 and $192,291, respectively | 214,109 | 251,748 | ||||||
| Notes payable, net of discount of $0 and $0, respectively | 125,000 | 125,000 | ||||||
| Notes payable - related party - current | - | 125,000 | ||||||
| Advances from related party | 10,800 | 10,800 | ||||||
| Derivative liabilities | 6,818,117 | 1,309,190 | ||||||
| Total Current Liabilities | 7,709,559 | 2,435,194 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Convertible notes payable, net of discount of $0 and $54,085, respectively | - | 915 | ||||||
| Accrued expenses, net of current portion | - | 3,211 | ||||||
| TOTAL LIABILITIES | 7,709,559 | 2,439,320 | ||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock, $0.001 par value, 7,000,000 shares authorized, no shares issued and outstanding at September 30, 2018 and December 31, 2017 | - | - | ||||||
| Series A preferred stock, $0.001 par value, 3,000,000 authorized, 3,000,000 shares issued and outstanding at September 30, 2018 and December 31, 2017 | 3,000 | - | ||||||
| Common stock, $0.001 par value, 3,000,000,000 shares authorized; 784,794,117 and 115,399,226 issued and 784,194,117 and 114,799,226 outstanding at September 30, 2018 and December 31, 2017, respectively | 784,196 | 114,800 | ||||||
| Additional paid-in capital | 10,874,552 | 1,074,707 | ||||||
| Accumulated deficit | (19,015,684 | ) | (3,425,680 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (7,353,936 | ) | (2,236,173 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 355,623 | $ | 203,147 | ||||
| For the Three Months Ended September 30, 2019 | For the Three Months Ended September 30, 2018 | For the Nine Months Ended September 30, 2019 | For the Nine Months Ended September 30, 2018 | ||||||||||||||
| Revenues | $ | 57,500 | $ | 52,400 | $ | 169,900 | $ | 66,800 | |||||||||
| Cost of revenues | 8,000 | 36,395 | 41,439 | 41,323 | |||||||||||||
| Gross profit | 49,500 | 16,005 | 128,461 | 25,477 | |||||||||||||
| OPERATING EXPENSES | |||||||||||||||||
| Research and development | - | 2,884 | - | 10,284 | |||||||||||||
| General and administrative, including stock-based compensation of $0, $0, $0, and $1,877, respectively | 317,636 | 282,670 | 912,182 | 793,216 | |||||||||||||
| Amortization of patent costs | 5,286 | 5,286 | 15,858 | 15,858 | |||||||||||||
| TOTAL EXPENSES | 322,922 | 290,840 | 928,040 | 819,358 | |||||||||||||
| Operating loss | (273,422 | ) | (274,835 | ) | (799,579 | ) | (793,881 | ) | |||||||||
| OTHER INCOME/(EXPENSE) | |||||||||||||||||
| Interest expense | (529,188 | ) | (377,038 | ) | (1,487,984 | ) | (981,341 | ) | |||||||||
| Gain (loss) on extinguishment of convertible notes | 10,897 | - | (346,395 | ) | 496,645 | ||||||||||||
| Change in fair value of derivatives liabilities | (1,614,411 | ) | (919,147 | ) | (657,765 | ) | (14,311,427 | ) | |||||||||
| Total other expense | (2,132,702 | ) | (1,296,185 | ) | (2,492,144 | ) | (14,796,123 | ) | |||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (2,406,124 | ) | (1,571,020 | ) | (3,291,723 | ) | (15,590,004 | ) | |||||||||
| Provision for income taxes | - | - | - | - | |||||||||||||
| NET LOSS | $ | (2,406,124 | ) | $ | (1,571,020 | ) | $ | (3,291,723 | ) | $ | (15,590,004 | ) | |||||
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.03 | ) | |||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | 1,511,896,142 | 739,239,617 | 1,182,674,443 | 519,120,610 | |||||||||||||
The accompanying notes are an integral part of thesethe condensed consolidated financial statements
| 2 |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONSCASH FLOWS
For the Three Months Ended September 30, | For the Three Months Ended September 30, | For the Nine | For the Nine | |||||||||||||
| Revenues | $ | 52,400 | $ | - | $ | 66,800 | $ | - | ||||||||
| Cost of revenues | 36,395 | - | 41,323 | - | ||||||||||||
| Gross profit | 16,005 | - | 25,477 | - | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Research and development | 2,884 | 87,728 | 10,284 | 172,748 | ||||||||||||
| General and administrative, including stock-based compensation of $0, $1,689, $1,877 and $144,112, respectively | 282,670 | 201,985 | 793,216 | 748,379 | ||||||||||||
| Amortization of patent costs | 5,286 | 5,286 | 15,858 | 10,709 | ||||||||||||
| TOTAL EXPENSES | 290,840 | 294,999 | 819,358 | 931,836 | ||||||||||||
| Operating loss | (274,835 | ) | (294,999 | ) | (793,881 | ) | (931,836 | ) | ||||||||
| OTHER INCOME/(EXPENSE) | ||||||||||||||||
| Interest expense | (377,038 | ) | (129,778 | ) | (981,341 | ) | (195,523 | ) | ||||||||
| Gain on extinguishment of convertible notes | - | - | 496,645 | - | ||||||||||||
| Change in fair value of derivatives liabilities | (919,147 | ) | 372,595 | (14,311,427 | ) | (54,530 | ) | |||||||||
| Total other expense | (1,296,185 | ) | 242,817 | (14,796,123 | ) | (250,053 | ) | |||||||||
| OPERATING LOSS | (1,571,020 | ) | (52,182 | ) | (15,590,004 | ) | (1,181,889 | ) | ||||||||
| NET LOSS | $ | (1,571,020 | ) | $ | (52,182 | ) | $ | (15,590,004 | ) | $ | (1,181,889 | ) | ||||
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.01 | ) | ||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED | 739,239,617 | 106,313,750 | 519,120,610 | 105,885,362 | ||||||||||||
| For the Nine Months Ended September 30, 2019 | For the Nine Months Ended September 30, 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (3,291,723 | ) | $ | (15,590,004 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Stock based compensation | - | 1,877 | ||||||
| Amortization | 15,858 | 15,858 | ||||||
| Amortization of debt discounts | 1,350,982 | 878,349 | ||||||
| Increase in principal balance due to penalty provision | - | 12,500 | ||||||
| Change in fair value of derivatives liabilities | 657,765 | 14,311,427 | ||||||
| Loss on extinguishment of convertible notes payable | 346,395 | (496,645 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (14,900 | ) | (9,199 | ) | ||||
| Accounts payable | (8,039 | ) | 5,765 | |||||
| Accrued expenses | 128,001 | 47,133 | ||||||
| Management fee payable | (145,000 | ) | 66,300 | |||||
| Net cash used in operating activities | (960,661 | ) | (756,639 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Payments on notes payable to related party | (50,000 | ) | - | |||||
| Proceeds from notes payable to related party | 50,000 | - | ||||||
| Payments on convertible notes payable | (194,111 | ) | (405,294 | ) | ||||
| Prepayment premiums paid on convertible notes payable | (38,343 | ) | (57,004 | ) | ||||
| Proceeds from convertible notes payable | 1,047,295 | 1,378,072 | ||||||
| Net cash provided from financing activities | 814,841 | 915,774 | ||||||
| NET INCREASE (DECREASE) IN CASH | (145,820 | ) | 159,135 | |||||
| BEGINNING CASH BALANCE | 304,056 | 13,697 | ||||||
| ENDING CASH BALANCE | $ | 158,236 | $ | 172,832 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash payments for interest | $ | 14,357 | $ | 6,712 | ||||
| Cash payments for income taxes | $ | - | $ | - | ||||
| NON-CASH FINANCING ACTIVITIES: | ||||||||
| Conversion of notes payable, accrued interest and derivative liabilities into common stock | $ | 3,723,379 | $ | 10,319,680 | ||||
| Conversion of management fees into preferred stock | $ | - | $ | 150,000 | ||||
| Beneficial conversion feature | $ | - | $ | 114,000 | ||||
The accompanying notes are an integral part of these consolidated financial statementsstatements.
| 3 |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTSSTATEMENT OF CASH FLOWSSTOCKHOLDERS' EQUITY (DEFICIT)
For the Nine | For the Nine | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (15,590,004 | ) | $ | (1,181,889 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Stock based compensation | 1,877 | 144,112 | ||||||
| Amortization | 15,858 | 10,709 | ||||||
| Amortization of debt discounts | 878,349 | 173,578 | ||||||
| Increase in principal balance due to penalty provision | 12,500 | - | ||||||
| Change in fair value of derivatives liabilities | 14,311,427 | 54,530 | ||||||
| Gain on extinguishment of convertible notes payable | (496,645 | ) | - | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (9,199 | ) | - | |||||
| Accounts payable | 5,765 | 90,713 | ||||||
| Accrued expenses | 47,133 | 10,845 | ||||||
| Management fee payable | 66,300 | (69,500 | ) | |||||
| Net cash used in operating activities | (756,639 | ) | (766,902 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | - | 90,000 | ||||||
| Payments on convertible notes payable | (405,294 | ) | - | |||||
| Prepayment premiums paid on convertible notes payable | (57,004 | ) | - | |||||
| Proceeds from convertible notes payable | 1,378,072 | 376,250 | ||||||
| Proceeds from sale of common stock | - | 100,000 | ||||||
| Net cash provided from financing activities | 915,774 | 566,250 | ||||||
| NET INCREASE (DECREASE) IN CASH | 159,135 | (200,652 | ) | |||||
| BEGINNING CASH BALANCE | 13,697 | 221,868 | ||||||
| ENDING CASH BALANCE | $ | 172,832 | $ | 21,216 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash payments for interest | $ | 6,712 | $ | 11,100 | ||||
| Cash payments for income taxes | $ | - | $ | - | ||||
| NON-CASH FINANCING ACTIVITIES: | ||||||||
| Fair value of warrants issued in private placement | $ | - | $ | 5,546 | ||||
| Purchase of patents with amounts due to related party | $ | - | $ | 100,000 | ||||
| Conversion of notes payable, accrued interest and derivative liabilities into common stock | $ | 10,319,680 | $ | - | ||||
| Conversion of management fees into preferred stock | $ | 150,000 | $ | - | ||||
| Beneficial conversion feature | $ | 114,000 | $ | - | ||||
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| December 31, 2018 | 3,000,000 | $ | 3,000 | 902,711,370 | $ | 902,711 | $ | 12,180,985 | $ | (17,081,333 | ) | $ | (3,994,637 | ) | ||||||||||||||
| Common stock issued for cashless warrant exercise | - | - | 79,686,983 | 79,687 | (79,687 | ) | - | - | ||||||||||||||||||||
| Common stock issued for conversion of convertible notes, accrued interest and derivative liabilities | - | - | 1,126,075,936 | 1,126,076 | 232,012 | - | 1,358,088 | |||||||||||||||||||||
| Relief of derivative liabilities | - | - | - | - | 2,365,291 | - | 2,365,291 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (3,291,723 | ) | (3,291,723 | ) | |||||||||||||||||||
| September 30, 2019 | 3,000,000 | $ | 3,000 | 2,108,474,289 | $ | 2,108,474 | $ | 14,698,601 | $ | (20,373,056 | ) | $ | (3,562,981 | ) | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| June 30, 2019 | 3,000,000 | $ | 3,000 | 1,187,805,221 | $ | 1,187,806 | $ | 14,139,165 | $ | (17,966,932 | ) | $ | (2,636,961 | ) | ||||||||||||||
| Common stock issued for conversion of convertible notes, accrued interest and derivative liabilities | - | - | 920,669,068 | 920,668 | (222,789 | ) | - | 697,879 | ||||||||||||||||||||
| Relief of derivative liabilities | - | - | - | - | 782,225 | - | 782,225 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (2,406,124 | ) | (2,406,124 | ) | |||||||||||||||||||
| September 30, 2019 | 3,000,000 | $ | 3,000 | 2,108,474,289 | $ | 2,108,474 | $ | 14,698,601 | $ | (20,373,056 | ) | $ | (3,562,981 | ) | ||||||||||||||
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| December 31, 2017 | - | $ | - | 114,799,226 | $ | 114,800 | $ | 1,074,707 | $ | (3,425,680 | ) | $ | (2,236,173 | ) | ||||||||||||||
| Preferred stock issued for related party management fee | 3,000,000 | 3,000 | - | - | 147,000 | - | 150,000 | |||||||||||||||||||||
| Common stock issued for cashless warrant exercise | - | - | 225,534,647 | 225,535 | (225,535 | ) | - | - | ||||||||||||||||||||
| Common stock issued for conversion of convertible notes, accrued interest and derivative liabilities | - | - | 443,860,261 | 443,861 | 425,822 | - | 869,683 | |||||||||||||||||||||
| Relief of derivative liabilities | - | - | - | - | 9,450,681 | - | 9,450,681 | |||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 1,877 | - | 1,877 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (15,590,004 | ) | (15,590,004 | ) | |||||||||||||||||||
| September 30, 2018 | 3,000,000 | $ | 3,000 | 784,194,134 | $ | 784,196 | $ | 10,874,552 | $ | (19,015,684 | ) | $ | (7,353,936 | ) | ||||||||||||||
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholders' | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| June 30, 2018 | 3,000,000 | $ | 3,000 | 677,130,755 | $ | 677,133 | $ | 6,172,423 | $ | (17,444,664 | ) | $ | (10,592,108 | ) | ||||||||||||||
| Common stock issued for cashless warrant exercise | - | - | 66,228,985 | 66,229 | (66,229 | ) | - | - | ||||||||||||||||||||
| Common stock issued for conversion of convertible notes, accrued interest and derivative liabilities | - | - | 40,834,394 | 40,834 | 140,620 | - | 181,454 | |||||||||||||||||||||
| Relief of derivative liabilities | - | - | - | - | 4,627,738 | - | 4,627,738 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (1,571,020 | ) | (1,571,020 | ) | |||||||||||||||||||
| September 30, 2018 | 3,000,000 | $ | 3,000 | 784,194,134 | $ | 784,196 | $ | 10,874,552 | $ | (19,015,684 | ) | $ | (7,353,936 | ) | ||||||||||||||
| 4 |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 20182019
Introductory Comment
Unless otherwise indicated, any reference to “our company”, “we”, “us”, or “our” refers to Creative Medical Technology Holdings, Inc., and as applicable to its wholly owned subsidiary, Creative Medical Technologies, Inc., a Nevada corporation (“CMT”).
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Creative Medical Technology Holdings, Inc., is considered to be a commercial stage company, following the commencement of sales of stem cell separation equipment and disposable kits used in our Caverstem® procedure to treat ED in the fourth quarter of 2017.2017 and sales of our FemCelz procedure for vaginal rejuvenation that commenced in the second quarter of 2019. Our fiscal year end is December 31st. We have acquired the licensing rights for our Amniostem amniotic-based stem cell, purchased the patent for our ED and lower back pain treatments, and filed patent applications for our neurological treatments.
Use of Estimates – The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at September 30, 20182019 and for the three and nine monthnine-month periods then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The operations for the three and nine monthnine-month periods ended September 30, 2018,2019, are not necessarily indicative of the operating results for the full year.
Going Concern ���– The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United StatesStates of America, which contemplate continuation of the Company as a going concern. However, during the nine monthnine-month period ended September 30, 2018,2019, the Company incurred a net loss of $15,590,004$3,291,723 had negative cash flows from operating activities, had a working capital deficit of $7,522,727 and had minimal revenue-generating activities.$3,710,628. These factors raise substantial doubt about the ability of the Company to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations through loans or through additional sales of equity securities. There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Revenue - The Company recognizes revenue as it is earned as defined by U.S. GAAP. We have adopted the new revenue recognition standard ASC 606standards that went into effect on January 1, 2018 and determined there was no material impact to the Company’s financial statements.2018. All revenues reported in 2018 and beyond will reflectreflects those standards.
Fair Value of Financial Instruments - The Company’s financial instruments consist of cash and cash equivalents, convertible notes, and payables. The carrying amount of cash and cash equivalents and payables approximates fair value because of the short-term nature of these items.
When determining fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market data is not available. As of September 30, 20182019, and December 31, 2017,2018, the Company didn’t have any Level 1 or 2 financial instruments. The table below reflects the results of our Level 3 fair value calculations:
| Notes | Warrants | Total | Notes | Warrants | Total | |||||||||||||||||||
| Derivative liability at December 31, 2017 | $ | 1,060,315 | $ | 248,875 | $ | 1,309,190 | ||||||||||||||||||
| Derivative liability at December 31, 2018 | $ | 1,983,828 | $ | 1,243,554 | $ | 3,227,382 | ||||||||||||||||||
| Addition of new conversion option derivatives | 2,839,915 | 365,268 | 3,205,183 | 1,235,703 | 87,012 | 1,322,715 | ||||||||||||||||||
| Extinguishment/modification | (1,454,983 | ) | (910,308 | ) | (2,365,291 | ) | ||||||||||||||||||
| Conversion of note derivatives | (4,739,284 | ) | (4,597,397 | ) | (9,336,681 | ) | 631,941 | (280,639 | ) | 351,302 | ||||||||||||||
| Change in fair value | 1,948,816 | 9,691,609 | 11,640,425 | 47,901 | (39,849 | ) | 8,052 | |||||||||||||||||
| Derivative liability at September 30, 2018 | $ | 1,109,762 | $ | 5,708,355 | $ | 6,818,117 | ||||||||||||||||||
| Derivative liability at September 30, 2019 | $ | 2,444,390 | $ | 99,770 | $ | 2,544,160 | ||||||||||||||||||
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 shareshare calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. During the three and nine monthnine-month periods ended September 30, 2018,2019, the Company had 500,000 options and 255,771,846 warrants to purchase common stock outstanding. During the three and nine month periods ended September 30, 2017, the Company had 500,000 options and 966,667142,971,500 warrants to purchase common stock outstanding. In addition, the Company has various convertible notes payable which at September 30, 20182019, are convertible into approximately 73,750,8204,823,409,335 shares of common stock. During the three and nine-month periods ended September 30, 2018, the Company had 500,000 options and 255,771,846 warrants to purchase common stock outstanding. The effects of the dilutive securities were anti-dilutive due to net loss during the three and nine monthnine-month periods ended September 30, 20182019 and 2017.2018.
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Recent Accounting Pronouncements – In July 2017,February 2016, the FASB issued ASU, No. 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) DerivativesLeases, which requires lessees to recognize most leases on their balance sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged. Additional qualitative and Hedging (Topic 815),”quantitative disclosures are also required. The Company adopted the standard effective January 1, 2019 using the cumulative-effect adjustment transition method, which addressesapplies the complexityprovisions of the standard at the effective date without adjusting the comparative periods presented. The Company adopted the following practical expedients and elected the following accounting policies related to this standard update:
• The option to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019
• Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and
• The option to not separate lease and non-lease components for certain equipment lease asset categories such as freight car, vehicles and work equipment.
• The package of practical expedients applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases.
The Company has inventoried all leases where the Company is a lessee as of the initial date of application and has examined other contracts with suppliers, vendors, customers and other outside parties to identify whether such contracts contain an embedded lease as defined under the new guidance. The Company’s lease population comprises an office, which is immaterial to the consolidated financial instruments with down round features. Down round features are featuresstatements.
As a result of certain equity-linked instruments (or embedded features) that result in the strike price being reducedabove, the adoption of ASC 842 did not have a material effect on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.statements. The Company is currently evaluatingwill review for the impactexistence of adopting this guidance on its consolidated financial statements.embedded leases in future agreements.
The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements other than disclosed above.
NOTE 2 – LICENSING AGREEMENTS
ED Patent – The Company acquired a patent from CMH.Amortization expense of $2,493 and $7,479 were recorded for the three month and nine monthsnine-month periods ended September 30, 2018,2019, respectively.As of September 30, 2018,2019, the carrying value of the patent was $73,397.$63,425. The Company expects to amortize approximately $9,972 annually through 2026 related to the patent costs.
Male Infertility License Agreement - The Company has acquired a royalty license from Los Angeles Biomedical Research Institute at Harbor-UCLA Medical Center (“LABIOMED ”) granting the exclusive license to the products and services of a LABIOMED patent.
The Company is subject to a 6% royalty payment to LABIOMED on net sales of any products under this license and 25% on any non-royalty sublicense income. Commencing in 2019, and each subsequent year thereafter, the Company is required to pay to LABIOMED annual maintenance royalties of $20,000, unless during the prior one-year period the Company paid $50,000 or more in actual royalty payments. Finally, the Company agreed to pay LABIOMED certain milestone payments upon achieving the milestones set forth in the agreement. As of September 30, 2018, no amounts are currently due to LABIOMED.
Multipotent Amniotic Fetal Stem Cells License Agreement - In August 2016, CMT entered into a License Agreement with a University. This license agreement grants to CMT the exclusive right to all products derived from a patent for use of multipotent amniotic fetal stem cells composition of matter throughout the world during the period ending on the expiration date of the longest-lived patent rights under the patent. CMT paid the University an initial license fee within 30 days of entering into the agreement. CMT is also required to pay annual license maintenance fees on each anniversary date of the agreement, which maintenance fees would be credited toward any earned royalties for any given period. The License Agreement provides for payment of various milestone payments and earned royalties on the net sales of licensed products by CMT or any sub licensee. CMT is also required to reimburse the University for any future costs associated with maintaining the patent. CMT may terminate the license agreement for any reason upon 90 days’ written notice and the University may terminate the agreement in the event CMT fails to meet its obligations set forth therein, unless the breach is cured within 30 days of the notice from the University specifying the breach. CMT is also obligated to indemnify the University against claims arising due to the exercise of the license by CMT or any sub licensee. As of September 30, 2018,2019, 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 linestraight-line basis. Amortization expense of $293 and $879 were recorded for the three and nine monthnine-month periods ended September 30, 20182019, respectively.As of September 30, 2018,2019, the carrying value of the patent was $7,894.$6,722. The Company expects to amortize approximately $1,172 annually through 2026 related to the patent costs.
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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 linestraight-line basis. Amortization expense of $2,500 and $7,500 were recorded for the three and nine monthnine-month periods ended September 30, 2018,2019, respectively. As of September 30, 2018,2019, the carrying value of the patent was $87,500.$77,500. The company expects to amortize approximately $10,000 annually through 2027 related to the patent costs.
For a period of five years from the date of the first sale of any product derived from the patent, StemSpine is required to make royalty payments of 5% from gross sales of products. StemSpine has also agreed to pay royalties of 50% of sale price or ongoing payments from third parties for licenses granted under the patent to third parties. In addition, StemSpine has agreed to make progress payments under the patent purchase agreement determined by whether the technology represented by the patent is tested by use of autologous cells or allogenic cells. In the case of pursuit of the technology using autologous cells, StemSpine has agreed to pay CMH $100,000 upon the signing of an agreement with a university for the initiation of an IRB clinical trial and $200,000 upon completion of the clinical trial. In the event StemSpine determines to pursue the technology using allogenic cells, StemSpine has agreed to pay CMH $100,000 upon the filing for INDan innovative new drug application (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 the event StemSpine commercializes the technology via use of autologuous cells by a physician without a clinical trial, StemSpine has agreed to pay CMH $300,000. In each case StemSpine has the option to make these payments in cash or in shares of the Company’s common stock at a discount to the market price of the stock at the time of the transaction. The parties to the patent purchase agreement have agreed that in no event will the aggregate royalty payments under the agreement exceed $2,500,000.
NOTE 3 – RELATED PARTY TRANSACTIONS
The Company has incurred a monetary obligation to a related corporation to reimburse the cost of services provided to the Company (management and consulting) through September 30, 2018.March 31, 2020. 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$45,000 per month for such services beginning January 2016.services. The compensation paid by CMH will include an allocation of services performed for CMH and for the Company. The amounts are presented as a “management fee payable - related party” on the accompanying unaudited condensed consolidated balance sheets. The liability is non-interest bearing, unsecured, and will be due upon the Company successfully raising at least $1,000,000 through the sale of equity. As of September 30, 2018, amounts due to CMH under the arrangement were $269,050.
On November 17, 2017, the Company entered into a Management Reimbursement Agreement dated November 17, 2017, with Creative Medical Technologies, Inc. (“ CMT ”), the wholly owned subsidiary of the Company, and with Creative Medical Health, Inc., the parent of the Company (“ CMH ”). The Agreement memorializes the arrangement between the parties whereby the Company has, since January 1, 2016, reimbursed CMH $35,000 per month for the services of management and consultants employed by CMH and performing services for the Company and CMT. At the option of CMH, the reimbursable amounts set forth in the Agreement may be paid from time to time in shares of common stock of the Company at a price equal to a 30% discount to the lowest closing price during the 20 trading days prior to time the notice is given. The Agreement may be terminated by either party upon 30 days’ prior written notice.
On January 12, 2018, the Company entered into a Debt Settlement Agreement with Creative Medical Health, Inc., the parent As of the Company, to exchange $150,000 in management fees owed to Creative Medical Health, Inc. in exchange for 3,000,000 shares of Series A Preferred Stock. In turn, Creative Medical Health, Inc. entered into a Debt Settlement Agreement with Timothy Warbington, our CEO, Chairman, and principal shareholder to transfer the 3,000,000 shares of Series A Preferred Stock in exchange for $150,000 of unpaid compensation owed to Mr. Warbington.
During 2016, the Company entered into three note payable agreements with CMH in which the proceeds were used in operations. The notes payable were dated February 2, 2016, May 1, 2016 and May 18, 2016 and resulted in borrowings of $50,000, $50,000 and $25,000, respectively. Notes payable of $50,000 mature on AprilSeptember 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 paid2019, amounts due to CMH accrued interest related tounder the extended note of $4,050. On July 31, 2017, CMT and CMH entered into a Note Extension and Limited Waiver Agreement whereby the parties extended the maturity date of the 8% Promissory Note dated May 1, 2016, in the principal amount of $50,000, from July 31, 2017, to July 31, 2018, and CMH waived the nonpayment of the Note by CMT on the original maturity date. On extension, CMT paid to CMH accrued interest related to the extended note of $4,050. The notes incur interest at 8% per annum on the outstanding balance of the notes.
On April 11, 2018 CMH converted the total principal and accrued interest on all three notes into 9,855,307 shares of common stock.arrangement were $0.
See Note 2 for discussion of an additional related party transaction with CMH.
NOTE 4 – DEBT
$400,000110,000 Convertible Debenture – Peak One – Note 5
On May 2, 2017, the Company entered into a convertible debenture agreement with a third party for an aggregate principal amount of up to $400,000, for which up to $360,000 in proceeds is to be received. On May 2, 2017, the Company received the first tranche of proceeds of $85,000 for which the Company issued a convertible debenture in the face amount of $100,000. During the three and nine month periods ended September 30, 2018 the Company amortized $0 and $54,085 to interest expense respectively. As of September 30, 2018, a discount of $0 remained. During the three and nine month periods ended September 30, 2018, the lender converted $0 of principal into 0 shares of common stock and $54,200 of principal into 23,485,183 shares of common stock respectively. On March 23, 2018, the Company paid the lender $1,000 to extinguish the remaining principal balance. As of September 30, 2018 the Company had fulfilled all the obligations of the debenture.
$115,000 Convertible Note – Auctus – Note 6
On April 10, 2017,3, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $115,000,$110,000, for which $103,250$95,000 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,April 3, 2018. The note holder has notified the company they do not consider the note in default and their intent is to continue converting the remaining principal and accrued interest into common shares. During the three and nine month periods ended September 30, 2018, the Company amortized $0 and $4,600 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature and the warrants as derivative liabilities, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. During the three and nine month periods ended September 30, 2018, the lender did not convert any principal, interest and fees into common shares and converted $134,127 of principal, interest and fees into 145,929,641 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$55,000 Convertible Note – Global – Note 7
On April 24, 2017, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $55,000, for which $47,500 in proceeds were received on May 8, 2017. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of April 24, 2018. During the three and nine month periods ended September 30, 2018 the Company amortized $0 and $17,863 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature and the warrants as derivative liabilities, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. During the three and nine month periods ended September 30, 2018, the lender did not convert any principal, interest and fees into common shares and converted $47,613 of principal, interest and fees into 31,442,665 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$50,000 Secured Convertible Note – WBRE – Note 8
On June 26, 2017, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $50,000, for which $50,000 in proceeds were received on September 26, 2017. Under the terms of the agreement, the convertible note incurs interest at 12% per annum and matured on December 26, 2017. The convertible note has since been retired through a debt exchange agreement with a third party dated March 8, 2018, see "$60,000 Convertible Note" below.
$50,000 Convertible Note – Crown Bridge – Note 9
On July 19, 2017, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $50,000, for which $43,000 in proceeds were received on July 25, 2017. Under the terms of the agreement, the convertible note incurs interest at 5% per annum and has a maturity date of July 19, 2018. During the three and nine month ended September 30, 2018 the Company amortized $0 and $27,397 respectively to interest expense. As of September 30, 2018, a discount of $0 remained.
During the three and nine month periods ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $54,697 of principal, interest and fees into 56,453,381 common shares respectively. As of September 30, 2018 there were 333,470,447 common shares reserved with our transfer agent. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$30,000 Convertible Note – Global – Note 14
On January 9, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $30,000, for which 12,500,000 outstanding warrants from the convertible note dated April 24, 2017 were extinguished. The difference between the convertible note, the conversion feature and the value of the warrants was recorded as a derivative loss. No proceeds were received in conjunction with this note. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of January 9,1, 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 three times the number of common shares the convertible note is convertible into.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018, there were 0 shares reserved with our transfer agent with a potential of up to 0 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the convertible notes at any time within 180 days from the date of issuance at 120% of the principal and interest; and after 180 days the right of prepayment expires.
During the three and nine month periods ended September 30, 2018, the lender converted $5,000 of principal, interest and fees into 816,994 common shares and $32,744 of principal, interest and fees into 5,350,345 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$44,000 Convertible Note – Adar Bays – Note 15
On January 17, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $44,000, for which $19,000 in proceeds were received on January 23, 2018 and $19,000 in proceeds were received on February 26, 2018. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of January 17, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing the on issuance discount of $4,000, legal fees of $2,000 and the remaining discount of $34,324 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $40,324 to interest expense using the straight-line method over the term of the loan. During the three and nine month periods ended September 30, 2018 the Company amortized $0 and $40,324 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018, there were 0 shares reserved with our transfer agent with a potential of 0 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
There is no option for the Company to redeem the convertible note prior to maturity.
During the three and nine month periods ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $44,000 of principal, interest and fees into 27,518,485 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
In connection with the original agreement, the holder had the option to fund three additional $44,000 back end convertible notes. On July 16, 2018, the holder exercised this option and entered into three separate $44,000 convertible notes totaling $132,000. For which the Company received a total of $114,000 in net proceeds. Under the terms of the agreements, the convertible notes incurred interest at 10% per annum and has a maturity date of January 17, 2019. The convertible note are convertible upon issuance at a fixed price of $0.025 per share. The Company is amortizing the on issuance discount of $18,000 and the remaining discount of $114,000 due to the recording of a beneficiation conversion feature. In July and August 2018, the convertible notes were converted into 5,280,000 shares of common stock. The Company amortized the entire discount of $132,000 to interest expense during the three and nine months ended September 30, 2018. As of September 30, 2018, a discount of $0 remained.
$12,500 Convertible Note – Global – Note 16
On January 22, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $12,500, in exchange for the release of reserved shares to the Company. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of January 22, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the previous 20 trading days preceding the conversion date.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place.
In the event of default, the holder has the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the convertible note within 180 days from the date of issuance at 120% of the principal and interest. After 180 days the right of prepayment expires.
During the three and nine month periods ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $12,925 of principal, interest and fees into 2,111,873 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$53,000 Convertible Note – PowerUp – Loan 17
On February 15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $53,000, for which $50,000 in proceeds were received on February 22, 2018 . Under the terms of the agreement, the convertible note incurs interest at 12% per annum and has a maturity date of February 15, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 61% of the average of the two lowest traded prices of the Company’s common stock during the previous 15 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing the on issuance discount of $3,000 and the remaining discount of $50,000 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $53,000 to interest expense using the straight-line method over the term of the loan. During the three and nine month ended September 30, 2018 the Company amortized $0 and $53,000 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018, there were 0 shares reserved with our transfer agent with a potential of up to 0 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 22%.
The Company has the option to redeem the convertible notes within 90 days from the date of issuance at 115% of the principal and interest; between 91 and to 180 days from the date of issuance at 120% of the principal and interest; and after 180 days the right of prepayment expires.
On April 26, 2018 the Company retired the note with a payment of $82,084 to the note holder. A derivative liability gain of $279,795 was recorded to reflect the retirement of the derivative liability.
$27,500 Convertible Note – Global – Note 18
On March 9, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $27,500, for which proceeds of $23,500 were received on March 9, 2018. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of March 9, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is amortizing the discount of $27,500 due to on issuance discount of $4,000 and the recording of a derivative liability as discussed in Note 5. The Company is amortizing the discount of $27,500 to interest expense using the straight-line method over the term of the loan. During the three and nine month ended September 30, 2018 the Company amortized $0 and $27,500 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place.
In the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the convertible notes within 30 days from the date of issuance at 115% of the principal and interest; between 31 and to 60 days from the date of issuance at 120% of the principal and interest; between 61 and to 90 days from the date of issuance at 125% of the principal and interest; between 91 and to 120 days from the date of issuance at 130% of the principal and interest; between 121 and to 150 days from the date of issuance at 135% of the principal and interest; between 151 and 180 days from issuance at 140% of principal and interest; and after 180 days the right of prepayment expires.
During the three and nine month periods ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $28,344 of principal, interest and fees into 4,631,346 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$60,000 Convertible Note – Global – WBRE Exchange – Note 19
March 9, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $60,000, in exchange for the extinguishment of the outstanding principal due on the convertible note dated September 26, 2017, see disclosure above for "$50,000 Secured Convertible Note". No proceeds were received in conjunction with the exchange of this convertible note. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of March 9, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the previous 20 trading days preceding the conversion date. At no additional cost, we issued to the note holder 30,000,000 five-year warrants to purchase common stock at $0.01, subject to adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place.
In the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the convertible notes within 180 days from the date of issuance at 120% of the principal and interest; and after 180 days the right of prepayment expires.
At the date of the agreement, the Company determined that the transactions qualified for extinguishment accounting whereby the transaction was accounted for at fair market value with the excess value between the fair value of the old note and new note was accounted for as an extinguishment loss of $154,284.
During the three and nine month periods ended September 30, 2018, the lender converted $0 of principal, interest and fees into 0 common shares and $60,147 of principal, interest and fees into 45,665,203 common shares respectively. As of September 30, 2018 the Company had fulfilled all the obligations of the note.
$115,000 Convertible Note – Auctus – Note 20
On March 13, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $115,000, for which $97,250 in proceeds were received on March 19, 2018. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of December 13, 2018. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the average of the two lowest traded prices of the Company’s common stock during the previous 25 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to six times the number of common shares the convertible note is convertible into. The Company is amortizing the original issuance discount of $15,000 legal fees of $2,750 and the remaining discount of $97,250 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $115,000 to interest expense using the straight-line method over the term of the loan. During the three and nine month periods ended September 30, 2018 the Company amortized $69,418 and $115,000 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018, there were 34,737,400 shares reserved with our transfer agent with a potential of 0 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has the right to require the Company to pay an amount equal to 125% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the convertible notes within 90 days from the date of issuance at 125% of the principal and interest; between 91 and to 180 days from the date of issuance at 140% of the principal and interest; and after 180 days the right of prepayment expires.
During the three and nine month periods ended September 30, 2018, the lender converted $43,769 of principal, interest and fees into 34,737,400 common shares. On August 8, 2018, the Company retired the note and accrued interest with a payment of $106,312 to the note holder, which included a prepayment fee of $30,128 recorded within interest expense.
$48,000 Convertible Note – GS – Note 21
On March 15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $48,000, for which $45,600 in proceeds were received on March 20, 2018. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of March 15, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 63% of the average of the two lowest traded prices of the Company’s common stock during the previous 12 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to six times the number of common shares the convertible note is convertible into. The Company is amortizing legal fees of $2,400 and the remaining discount of $45,600 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $48,000 to interest expense using the straight-line method over the term of the loan. During the three and months ended September 30, 2018 the Company amortized $0 and $48,000 to interest expense respectively. As of September 30, 2018, a discount of $0 remained.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018, there were 0 shares reserved with our transfer agent with a potential of 0 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
The Company has the option to redeem the convertible notes within 60 days from the date of issuance at 110% of the principal and interest; between 61 and to 120 days from the date of issuance at 124% of the principal and interest; between 121 days and to 180 days from the date of issuance at 138%; and after 180 days the right of prepayment expires.
On April 25, 2018 the Company retired the note with a payment of $60,000 to the note holder. A derivative liability gain of $209,076 was recorded to reflect the retirement of the derivative liability.
$110,000 Convertible Note – Morningview – Note 22
On April 3, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $110,000, for which $95,000 in proceeds were received on April 3, 2018 . Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of March 29, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to five5 times the number of common shares the convertible note is convertible into. The Company is amortizing legal fees of $2,652 and the remaining discount of $107,348 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $110,000 to interest expense using the straight-line method over the term of the loan. During the three and nine monthsnine-month periods ended September 30, 20182019, the Company amortized $27,726$0 and $54,247$28,027 to interest expense respectively. As of September 30, 2018,2019, a discount of $55,753$0 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 maybemay be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018,2019, there were 84,110,0330 shares reserved with our transfer agent with a potential of 44,055,213205,041,021 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%.
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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.
During the three and nine-month periods ended September 30, 2019, the lender converted $67,345 of principal, interest and fees into 46,767,507 common shares and $112,845 of principal, interest and fees into 66,723,648 common shares respectively.
$110,000 Convertible Note – Fourth Man – Note 23
On April 11, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $110,000, for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity 12 months from the effective date of payment. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest trading price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $10,000 and the remaining discount of $100,000 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $110,000 to interest expense using the straight-line method over the term of the loan. During the three and monthsnine-month period ended September 30, 20182019, the Company amortized $27,726$0 and $51,836$30,438 to interest expense respectively. As of September 30, 2018,2019, a discount of $58,164$0 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 maybemay be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018,2019, there were 18,333,33322,722,974 shares reserved with our transfer agent with a potential of 26,377,9150 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 18%.
The Company has the option to redeem the convertible notes within 180 days from the date of issuance at 140% of the principal and interest. After 180 days the right of prepayment expires.
$110,000 Convertible Note – Power Up – Note 24
On April 13, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $110,000, for which $99,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 10% per annum and has a maturity date of March 29, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest trading price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $10,000, legal fees of $1,000 and the remaining discount of $99,000 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $110,000 to interest expense using the straight-line method over the term of the loan. During the three and monthsnine-month periods ended September 30, 20182019, the Company amortized $27,726lender converted $48,240 of principal, interest and $51,836 tofees into 33,499,750 common shares and $125,240 of principal, interest expenseand fees into 62,447,118 common shares, respectively.
As of September 30, 2018, a discount2019, the Company had fulfilled all the obligations of $58,164 remained.this note.
The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018, there were 13,000,000 shares reserved with our transfer agent with a potential of 26,377,915 being reserved if and when the lender issues a request to our transfer agent.
In the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 22%.
The Company has the option to redeem the convertible notes within 30 days from the date of issuance at 115% of the principal and interest; between 31 and to 60 days from the date of issuance at 120% of the principal and interest; between 61 and to 90 days from the date of issuance at 125% of the principal and interest; between 91 and to 120 days from the date of issuance at 130% of the principal and interest; between 121 and to 150 days from the date of issuance at 135% of the principal and interest; between 151 and to 180 days from the date of issuance at 140% of the principal and interest; and after 180 days the right of prepayment expires.
$108,000 Convertible Note – Global – Note 25
On May 14, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $108,000, for which $94,960 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of May 14, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest trading price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $8,000, legal fees of $5,040 and the remaining discount of $94,960 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $108,000 to interest expense using the straight-line method over the term of the loan. During the three and nine monthnine-month periods ended September 30, 20182019 the Company amortized $27,222$0 and $41,129$39,649 to interest expense.expense respectively. As of September 30, 2018,2019, a discount of $66,871$0 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 maybemay be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018, there were 35,000,0000 shares reserved with our transfer agent with a potential of 25,486,3290 being reserved if and when the lender issues a request to our transfer agent.
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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 principalprincipal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
There is no option to pre-pay this note.
$108,000 Note – Global – Note 26
On June 27, 2018, the Company entered into a note agreement with a third party for an aggregate principal amount of $108,000, for which $100,000 in proceeds were received. Under the terms of the agreement, the note incurs interest at 8% per annum and has a maturity date of September 27, 2019. The Company is amortizing the on-issuance discount of $8,000 to interest expense using the straight-line method over the term of the loan. During the three and nine monthnine-month periods ended September 30, 20182019, the Company amortized $1,797lender converted $0 of principal, interest and $1,863fees into 0 common shares and to$94,826 of principal, interest expenseand fees into 22,494,347 common shares respectively. On September 20, 2018, this note was combined with other notes disclosed below, a portion of which was repaid with the remainder being rolled into Global - Note 28 disclosed below.
As of September 30, 2018, a discount2019, the Company had fulfilled all the obligations of $0 remained.this note.
In the event of default, the holder has the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
$108,000 Note – Global – Note 27
On August 8, 2018, the Company entered into a note agreement with a third party for an aggregate principal amount of $108,000, for which $106,500 in proceeds were received. Under the terms of the agreement, the note incurs interest at 8% per annum and has a maturity date of August 8, 2019. The Company is amortizing the on-issuance discount of $1,500 to interest expense using the straight-line method over the term of the loan. During the three and nine month ended September 30, 2018 the Company amortized $177 to interest expense. On September 20, 2018, this note was combined with other notes disclosed immediately above and below, a portion of which was repaid with the remainder being rolled into Global - Note 28 disclosed below. As of September 30, 2018, a discount of $0 remained.
In the event of default, the holder has the right to require the Company to pay an amount equal to 120% multiplied by the then outstanding entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase to 24%.
$183,250 Convertible Note – Global – Note 28
On September 20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $183,250, for which $100,000 in proceeds were received and the remaining balances of two 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, Globalthe 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 three and nine monthnine-month periods ended September 30, 20182019 the Company amortized $5,021$0 and $132,040 to interest expense.expense respectively. As of September 30, 2018,2019, a discount of $178,229$0 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 maybemay be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018,2019, there were 25,000,0000 shares reserved with our transfer agent with a potential of 38,859,0580 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 17030 days the right of prepayment expires.
During the three and nine-month periods ended September 30, 2019, the lender converted $0 of principal, interest and fees into 0 common shares and $191,282 of principal, interest and fees into 38,606,150 common shares respectively.
As of September 30, 2019, the Company had fulfilled all the obligations of this note.
$183,250 Convertible Note – Morningview – Note 29
On September 20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $183,250, for which $169,676 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of September 20, 2019. The convertible note is convertible at any time after 31 days after the closing date and convertible into shares of the Company’s stock at a conversion price equal to 65% of the lowest trading price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $13,574, legal fees of $8,363 and the remaining discount of $161,313 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $183,250 to interest expense using the straight-line method over the term of the loan. During the three and nine monthnine-month periods ended September 30, 20182019, the Company amortized $5,021$41,168 and $132,040 to interest expense.expense respectively. As of September 30, 2018,2019, a discount of $178,229$0 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.
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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 maybemay be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018,2019, there were 25,000,00011 shares reserved with our transfer agent with a potential of 38,859,058875,298,605 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 companyCompany has the option to redeem the note at the default amount stated above. After 170 days the right of prepayment expires.
During the three and nine-month periods ended September 30, 2019, the lender converted $66,075 of principal, interest and fees into 98,586,106 common shares and $103,075 of principal, interest and fees into 113,565,864 common shares respectively.
$183,250 Convertible Note – Fourth Man – Note 29
On September 20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $183,250, for which $169,676 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of September 20, 2019. The convertible note is convertible at any time after 31 days after the closing date and convertible into shares of the Company’s stock at a conversion price equal to 65% of the lowest trading price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $13,574, legal fees of $8,363 and the remaining discount of $161,313 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $183,250 to interest expense using the straight-line method over the term of the loan. During the three and nine monthnine-month periods ended September 30, 20182019 the Company amortized $5,021$41,168 and $132,040 to interest expense.expense respectively. As of September 30, 2018,2019, a discount of $178,229$0 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 maybemay be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2018,2019, there were 25,000,0000 shares reserved with our transfer agent with a potential of 38,859,0581,683,165,057 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.
During the three and nine-month periods ended September 30, 2019, the lender converted $16,250 of principal, interest and fees into 25,000,000 common shares.
$108,000 Convertible Note
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 and other transaction-related expenses 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 three and nine-month periods ended September 30, 2019, the Company amortized $0 and $70,041 to interest expense respectively. As of September 30, 2019, a discount of $0 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.
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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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 46,189,234 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.
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.
During the three and nine-month periods ended September 30, 2019, the lender converted $0 of principal, interest and fees into 0 common shares and $112,267 of principal, interest and fees into 42,483,073 common shares respectively.
As of September 30, 2019, the Company had fulfilled all the obligations of this note.
$108,000 Convertible Note
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 and other transaction-related expenses 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 three and nine-month periods ended September 30, 2019 the Company amortized $24,522 and $60,506 to interest expense respectively. As of September 30, 2019, a discount of $12,261 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 0 shares reserved with our transfer agent with a potential of 990,438,200 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
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 three and nine-month periods ended September 30, 2019 the Company amortized $36,783 and $72,767 to interest expense respectively. As of September 30, 2019, a discount of $0 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.
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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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 7 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.
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.
During the three and nine-month periods ended September 30, 2019, the lender converted $114,409 of principal, interest and fees into 120,047,983 common shares.
As of September 30, 2019, the Company had fulfilled all the obligations of this note.
$168,300 Convertible Note
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 71% of the average of the 2 lowest trading 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 6 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 three and nine-month periods ended September 30, 2019, the Company amortized $0 and $83,184 to interest expense respectively. As of September 30, 2019, 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 152,439,592 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 100% of the principal and interest; between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to 180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
On January 18, 2019 the Company retired the note with a payment of $187,484 to the note holder. A derivative liability gain of $59,519 and a premium loss of $19,154 were recorded to reflect the retirement of the loan.
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$140,800 Convertible Note
On January 30, 2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $140,800, for which $125,000 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 January 1, 2020. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 71% of the 2 lowest trading 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 6 times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $12,800, legal fees of $3,000 and the remaining discount of $113,495 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $129,295 to interest expense using the straight-line method over the term of the loan. During the three and nine-month periods ended September 30, 2019, the Company amortized $75,806 and $129,295 respectively. As of September 30, 2019, 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 88,783,544 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 100% of the principal and interest; between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to 180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
During the three and nine-month periods ended September 30, 2019, the lender converted $120,109 of principal, interest and fees into 105,683,673 common shares and the Company paid down $25,811 of principal.
As of September 30, 2019, the Company had fulfilled all the obligations of this note.
Warrant Exchange
On February 28, 2019, the Company entered into three separate Exchange Agreements with the 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 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. The Company is required at all times to reserve shares of the Company’s common stock equal to 3 times the number of common shares the convertible note is convertible into.
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.
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. 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 25,000,000 shares reserved with our transfer agent with a potential of 1,464,079,309 being reserved if and when the lender issues a request to our transfer agent.
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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.
During the three and nine-month periods ended September 30, 2019, the lenders converted $50,700 of principal, interest and fees into 130,000,000 common shares and $153,034 of principal, interest and fees into 167,940,031 common shares respectively.
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, each Investor purchased a Note in the principal amount of $110,000 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.
The Company is required at all times to reserve shares of the Company’s common stock equal to 3 times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $40,000, legal fees of $29,110 and the remaining discount of $370,890 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $440,000 to interest expense using the straight-line method over the term of the loan. During the three- and nine-month periods ended September 30, 2019, the Company amortized $110,600 and $256,064 respectively. As of September 30, 2019, a discount of $183,936 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 130,000,000 shares reserved with our transfer agent with a potential of 2,523,330,819 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.
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.
During the three and nine-month periods ended September 30, 2019, the lenders converted $119,724 of principal, interest and fees into 234,302,572 common shares.
$91,300 Convertible Note
On March 8, 2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $91,300, for which $80,300 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 12% per annum and has a maturity date of March 8, 2020. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 71% of the 2 lowest trading 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 6 times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $8,300, legal fees of $2,700 and the remaining discount of $60,762 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $71,762 to interest expense using the straight-line method over the term of the loan. During the three- and nine-month periods ended September 30, 2019, the Company amortized $49,163 and $71,762 respectively. As of September 30, 2019, a discount of $0 remained.
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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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 8,360,418 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 100% of the principal and interest; between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to 180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
During the three and nine-month periods ended September 30, 2019, the lenders converted $95,030 of principal, interest and fees into 126,781,478 common shares.
As of September 30, 2019, the Company had fulfilled all the obligations of this note.
$133,000 Convertible Note
On June 20, 2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $133,000, for which $114,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 11% per annum and has a maturity date of June 20, 2020. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 66% 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 4 times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $13,000 legal fees of $6,000 and the remaining discount of $114,000 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $133,000 to interest expense using the straight-line method over the term of the loan. During the three and six months ended September 30, 2019 the Company amortized $33,432 and $37,066 respectively. As of September 30, 2019, a discount of $95,934 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 20,151,000 shares reserved with our transfer agent with a potential of 1,661,677,377 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 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 130% of the principal and interest; between 121 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.
$100,000 Convertible Note and Warrant Purchase
On July 2, 2019, the Company completed the sale of 8% Original Issue Discount Senior Convertible Notes and Common Stock Purchase Warrants to two institutional investors pursuant to a Securities Purchase Agreement between the Company and the Investors dated as of July 2, 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 $50,000, each Investor purchased a Note in the principal amount of $54,000.00 and a Warrant to purchase 5,555,555 shares of common stock. Each Note matures on June 27, 2020, bears interest at a rate of 8% per annum, and is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded price 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.
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The Company is required at all times to reserve shares of the Company’s common stock equal to 3 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 $5,000 and the remaining discount of $95,000 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $108,000 to interest expense using the straight-line method over the term of the loan. During the three- and nine-month periods ended September 30, 2019, the Company amortized $26,850. As of September 30, 2019, a discount of $81,150 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 0 shares reserved with our transfer agent with a potential of 1,101,304,110 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 at the Holder’s discretion, (i) the conversion of the outstanding principal amount of this Note, plus all accrued and unpaid interest, converted at the Conversion Price or (ii) the payment 135% of the outstanding principal amount of this Note and accrued and unpaid interest hereon, in addition to, for both (i) and (ii), above, the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Note. Additionally, at the Holder’s discretion, upon the occurrence of an Event of Default, without any further action on the part of the Company or the Holder, the Conversion Price shall be reduced to an amount equivalent to fifty percent (50%) of the lowest traded price during the fifteen (15) Trading Days immediately prior to the applicable Conversion Date.
Each Warrant is exercisable for a five-year period at an initial exercise price of $0.0045 per share, subject to anti-dilution adjustment in the event of future sales of equity by the Company below the then exercise price, stock dividends, stock splits and other specified events.
$243,000 Convertible Notes and Warrant Purchases
On July 29, 2019, the Company completed the sale of 8% Original Issue Discount Senior Convertible Notes and Common Stock Purchase Warrants to three institutional investors pursuant to a Securities Purchase Agreement between the Company and the Investors dated as of July 29, 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 $75,000, each Investor purchased a Note in the principal amount of $81,000 and a Warrant to purchase 4,807,695 shares of common stock. Each Note matures on July 28, 2020, bears interest at a rate of 8% per annum, and is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded price 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.
The Company is required at all times to reserve shares of the Company’s common stock equal to 3 times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $18,000, legal fees of $2,015 and the remaining discount of $222,985 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $243,000 to interest expense using the straight-line method over the term of the loan. During the three- and nine-month periods ended September 30, 2019, the Company amortized $41,829. As of September 30, 2019, a discount of $201,171 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 302,433,249 shares reserved with our transfer agent with a potential of 2,463,553,973 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 at the Holder’s discretion, (i) the conversion of the outstanding principal amount of this Note, plus all accrued and unpaid interest, converted at the Conversion Price or (ii) the payment 135% of the outstanding principal amount of this Note and accrued and unpaid interest hereon, in addition to, for both (i) and (ii), above, the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Note. Additionally, at the Holder’s discretion, upon the occurrence of an Event of Default, without any further action on the part of the Company or the Holder, the Conversion Price shall be reduced to an amount equivalent to fifty percent (50%) of the lowest traded price during the fifteen (15) Trading Days immediately prior to the applicable Conversion Date.
Each Warrant is exercisable for a five-year period at an initial exercise price of $0.0039 per share, subject to anti-dilution adjustment in the event of future sales of equity by the Company below the then exercise price, stock dividends, stock splits and other specified events.
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CEO Advance
On July 24, 2019, Timothy Warbington, the Company’s Chief Executive Officer, made an unsecured loan to the Company in the principal amount of $50,000. The loan is payable on the earlier of demand and July 23, 2020, and bears interest at the rate of 2.13% per annum.
As of September 30, 2019, the Company had fulfilled all the obligations of this note.
$69,300 Convertible Note
On August 22, 2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $69,300, for which $63,000 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 March 8, 2020. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 71% of the 2 lowest trading 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 5 times the number of common shares the convertible note is convertible into. The Company is amortizing an on-issuance discount of $6,300, legal fees of $3,000 and the remaining discount of $60,000 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $69,300 to interest expense using the straight-line method over the term of the loan. During the three- and nine-month periods ended September 30, 2019, the Company amortized $7,384. As of September 30, 2019, a discount of $61,916 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. 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 may be put on the Company’s stock price and additional dilution of current shareholders may take place. As of September 30, 2019, there were 25,000,000 shares reserved with our transfer agent with a potential of 984,399,614 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 22%.
The Company has the option to redeem the convertible notes within 30 days from the date of issuance at 100% of the principal and interest; between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to 180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
As of September 30, 2019, future loan maturities are as follows:
| For the year ended December 31, | ||||||||
| 2018 | 0 | |||||||
| 2019 | 987,750 | 504,990 | ||||||
| 2020 | 1,027,624 | |||||||
| Total | $ | 987,750 | $ | 1,532,614 | ||||
NOTE 5 – DERIVATIVE LIABILITIES
Derivative Liabilities
In connection with convertible notes payable, the Company records derivative liabilities for the conversion feature. In addition, the Company has warrants for which the exercise prices reset upon future events. These warrants are also considered to be derivative liabilities. The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at each reporting period. The warrants are valued on the date of issuance and revalued at each reporting period. During the nine months ended September 30, 2018,2019, the Company recorded initial derivative liabilities of $3,205,183$1,322,715 based upon the following Black-Scholes option pricing model average assumptions: an exercise price of $0.0009$0.0007 to $0.0137$0.0206 our stock price on the date of grant of $0.0029$0.0007 to $0.0550,$0.0185, expected dividend yield of 0%, expected volatility of 86%77% to 214%100%, risk free interest rate of 2.03%1.56% to 2.80%2.55% and expected terms ranging from 1.0 to 5.0 years. Upon initial valuation, the derivative liabilityliabilities exceeded the face valuevalues certain of the convertible note payablesnotes payable by approximately $2,671,002,$306,463, which was recorded as a day one loss onin derivative liability.
On September 30, 2018,2019, the derivative liabilities were revalued at $6,818,117$2,554,160 resulting in a loss of $919,147$1,432,412 related to the change in fair market value of the derivative liabilities during the three months ended September 30, 2018. The total loss related to the change in fair market value of the derivative liabilities during the nine months ended September 30, 2018 was $11,640,425.liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following average assumptions: an exercise price of $0.0008$0.0004 to $0.0880,$0.0250, our stock price on the date of valuation ($0.0234)0.0008), expected dividend yield of 0%, expected volatility of 95%93% to 214%100%, risk-free interest rates ranging from 2.63 - 2.80%rate of 1.56%, and an expected terms ranging from 0.5 to 4.94.8 years.
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In connection with convertible notes converted, and warrants exercised, as disclosed in Note 5, the Company reclassed derivative liabilities with a fair value of $9,336,681$782,225 and $2,365,291 to additional paid-in capital.capital for the three- and nine-month periods ended September 30, 2019 respectively. The Company revalued the derivative liabilities at each conversion date recording the pro-rata portion of the derivative liability as compared to the portion of the convertible note converted to the pre-conversion carrying value to additional paid-in capitalcapital.
Future Potential Dilution
Most of the Company’s convertible notes payable contain adjustable conversion terms with significant discounts to market. As of September 30, 20182019, the Company’s convertible notes payable are potentially convertible into an aggregate of approximately 74 million4.8 billion shares of common stock. In addition, due to the variable conversion prices on some of the Company’s convertible notes, the number of common shares issuable is dependent upon the traded price of the Company’s common stock.
NOTE 6 – WARRANTS
From March 2017 through September 2019, the Company issued 129,575,745 warrants to multiple parties associated with the issuance of convertible notes. The issued warrants expire 5 years from the date of issuance and have anti-dilution and re-pricing features.
The fair value of each warrant is estimated using the Black-Scholes valuation model. Assumptions used in calculating the fair value at September 30, 20182019 were as follows:
| Weighted Average Inputs Used | ||||
| Annual dividend yield | $ | - | ||
| Expected life (years) | 3.8 to 4.9 | |||
| Risk-free interest rate | 2.63 | % | ||
| Expected volatility | 91 | % | ||
| Common stock price | $ | 0.0234 | ||
| Weighted Average Inputs Used | ||||
| Annual dividend yield | $ | - | ||
| Expected life (years) | 2.8 to 4.8 | |||
| Risk-free interest rate | 1.56 | % | ||
| Expected volatility | 94 | % | ||
| Common stock price | $ | 0.0008 | ||
Since the expected life of the optionswarrants was greater than the Company’s historical stock information available, the Public Company determined the expected volatility based on price fluctuations of comparable public companies.
The issuances, exercises and pricing re-sets during the ninesix months ended September 30, 20182019, are as follows:
| Outstanding at December 31, 2017 | 23,426,087 | |||
| Issuances | 69,919,777 | |||
| Exercises | (223,803,769 | ) | ||
| Anti-Dilution/Modification | 401,430,751 | |||
| Forfeitures/cancellations | (15,200,000 | ) | ||
| Outstanding at September 30, 2018 | 255,772,846 | |||
| Weighted Average Price at September 30, 2018 | $ | 0.0023 |
| Outstanding at December 31, 2018 | 142,075,119 | |||
| Issuances | �� | 36,429,554 | ||
| Exercises | (89,107,585 | ) | ||
| Anti-Dilution/Modification | 68,828,703 | |||
| Forfeitures/cancellations | (9,698,736 | ) | ||
| Outstanding at September 30, 2019 | 148,527,055 | |||
| Weighted Average Price at September 30, 2019 | $ | 0.0027 |
NOTE7 –SUBSEQUENTEVENTS
NOTE 7 – SUBSEQUENT EVENTS
Inaccordancewith ASCASC 855, managementmanagement reviewedall materialeventsthrough through August14,2018, 13, 2019, for thesethese financialstatements statements andthere are no materialsubsequenteventstoreport, subsequent events to report, except as follows:
On October 11, 2019, the Company completed the sale of 8% Original Issue Discount Senior Convertible Notes (“Notes”) to three institutional investors pursuant to a Securities Purchase Agreement between the Company and the investors. 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 an aggregate purchase price of $275,000, the Investors purchased Notes in the aggregate principal amount of $297,000. Each Note matures on October 11, 2020, bears interest at a rate of 8% per annum, and is convertible into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded price of the Company’s common stock during the 15 trading days preceding the applicable conversion date.
The Purchase Agreement requires the Company to file a preliminary information statement with the Securities and Exchange Commission within 30 days following the closing to effect a reverse split of the Company’s Common Stock at a ratio of between one-for-25 and one-for-75, and to cause the Reverse Split to become effective no later than December 30, 2019. In addition, the Notes are subject to covenants, events of defaults and other terms and conditions customary in transactions of this nature.
Conversion Notice
ConversionNotice
FromDuring October 16,2018 through October 22, 2018 weissued11,967,158 sharesand November of common stockfor theconversionof $115,000 inconvertiblenotes.
On October 18, 20182019, we issued 9,297,576287,103,971 shares of common stock to a lender whom exercised 10,000,000 warrantsfor the conversion of $77,061 in a cashless exercise. convertible notes.
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On November12,2018 we issued25,055,575sharesofcommon stock to alenderwhomexercised28,200,000 warrantsina cashless exercise.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of income.operations. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017,2018, and our interim financial statements and accompanying notes to these financial statements included in this report. All amounts are in U.S. dollars.
Forward-Looking Statement Notice
This quarterly report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual report referenced below.
This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Overview
We are considered to be a commercial stage company, following the commencement of sales of stem cell separation equipment and disposable kits used in our Caverstem procedure to treat ED in the fourth quarter of 2017.2017 and our FemCelz procedure for vaginal rejuvenation. Our fiscal year end is December 31st. We have acquired the licensing rights for our Amniostem amniotic-based stem cell, purchased the patent for our ED and lower back pain treatments, and filed patent applications for our neurological treatments.
During the first nine months of 2018,2019, we issued $1,448,750$1,275,400 in convertible notes with net proceeds of $1,378,072$1,047,295 to accredited investors. In addition, we issued $12,500$300,000 in convertible notes for the release of reserved shares and a $60,000 convertible note in exchange for a $50,000 convertible note.the extinguishment of 9,698,736 warrants.
During the nine-month period ending September 30, 2019, we incurred interest expense of $1,487,984 arising from the third-party notes of $1,532,614.
Plan of Operations
We commenced marketing disposable stem cell concentration machines and disposableseparation kits for the CaverstemCaverstem® ED treatment in the fourth quarter of 2017. We commenced marketing disposable stem cell separation kits for the FemCelz™ procedure to treat female sexual disfunction in the fourth quarter of 2018. For the next 12 months our plan of operations is to market our stem cell concentration machines and disposable kits, completepublish the result of the combined UCLA/LABiomed clinical trial and post-marketing patient results and partner with leading researchers on investigator-initiated trials to advance our neurological programs. We estimate the costs to complete the clinical trials will be approximately $300,000, excluding overhead and other costs associated with maintaining our company structure. As of September 30, 2018,2019, we had approximately $173,000$158,236 cash on hand. With an estimated monthly cash burn rate of approximately $95,000$100,000 based on historic trends and anticipated future revenues and expenses, management anticipates sufficient cash on hand and committed funds to meet operating expenses and costs of the current operations through at least November 2018.December 2019. Historically, we have met our cash flow requirements through the sale of equity securities or borrowed funds. We intend to fund our business through sales of stem cell centration machines and disposable kits along with continuing to seek investments to meet our cash flow requirements, including both operating expenses and the balance of funding required to fund our sales efforts and competecomplete our ED clinical trial. The securities offered by us to potential investors have not been registered under the Securities Act of 1933, as amended (the “Act ”)“Act”), and may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements. If we are unable to obtain further financing, we may seek alternative sources of funding or revise our business plan. We currently have no alternative sources for funding.
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Results of Operations – For the Three MonthThree-Month Period Ended September 30, 20182019 and 20172018
Gross Revenue. We generated $52,400$57,500 gross revenue for the three monththree-month period ended September 30, 20182019, in comparison with $0$52,400 for the comparable quarter a year ago. The increase of $5,100 or 10% reflects the increased sales of the disposable kits for the Caverstem and FemCelz procedures.
Cost of Goods Sold. We generated $36,395$8,000 cost of goods sold for the three monththree-month period ended September 30, 20182019, in comparison with $0$36,395 for the comparable quarter a year ago. The decrease of $28,395 or 78% reflects the lower per unit cost of the Caverstem 2.0 and FemCelz disposable kits and fewer kits used in training.
Gross Profit/(Loss). We generated $16,005$49,500 in gross profit for the three monththree-month period ended September 30, 20182019, in comparison with $0$16,005 for the comparable quarter a year ago. The increase of $33,495 or 209% is primarily driver by lower per unit costs of the disposable kits.
General and Administrative Expenses.General and administrative expenses for the three monththree-month period ended September 30, 2018,2019, totaled $282,670,$317,636, in comparison with $201,985,$282,670, for the comparable quarter a year ago. The increase of $80,685,$34,966, or 40%12% is primarily due to an increase of $47,759$26,718 in marketing and $32,272 inexpenses offset by decreased travel expenses associated with commercializingthe commercialization of the Caverstem procedure.and FemCelz procedures.
Research and DevelopmentDevelopment Expenses.Research and development expenses for the three monththree-month period ended September 30, 2018,2019, totaled $2,884$0 in comparison with $87,728,$2,884, for the comparable quarter a year ago. The decrease of $84,844,$2,884, or 97%100% is primarily due to a decrease of $77,644 in clinical research expenses associated with the erectile dysfunction trial and a reduction of $7,200$2,884 in laboratory expenses.
Other Income / Expense. Other expense for the three monththree-month period ended September 30, 2018,2019, totaled $1,296,185$2,132,702 in comparison with other incomeexpense of $242,817,$1,296,185, for the comparable quarter a year ago. The increased expenseincrease of $1,539,002,$836,517, or 634%65% is primarily due to an increase of $247,260increased loss in interest expense, an increased expense of $1,291,742 associated with the change inof the fair value of derivative liabilities.liabilities of $695,264 and a $152,150 increase in interest expense associated with an increase in the debt balance.
Net Loss. For the reasons stated above, our net loss for the three monththree-month period ended September 30, 20182019, totaled $1,571,020$2,406,124 in comparison to $52,182,$1,571,020, for the comparable quarter a year ago.
Results of Operations – For the Nine monthNine-month Period Ended September 30, 20182019 and 20172018
Gross Revenue. We generated $66,800$169,900 gross revenue for the nine monthnine-month period ended September 30, 20182019 in comparison with $0$66,800 for the comparable quarter a year ago. The increase of $103,100 or 154% reflects the increased sales of the disposable kits for the Caverstem and FemCelz procedures.
Cost of Goods Sold. We generated $41,323$41,439 cost of goods sold for the nine monthnine-month period ended September 30, 20182019 in comparison with $0$41,323 for the comparable quarter a year ago. The increase of $116 or 0.3% reflects the increased sales of the disposable kits for the Caverstem and FemCelz procedures offset by lower per unit costs of the disposable kits.
Gross Profit/(Loss). We generated $25,477$128,461 in gross profit for the nine monthnine-month period ended September 30, 20182019 in comparison with $0$25,477 for the comparable quarter a year ago. The increase of $102,984 or 404% reflects the increased sales of the disposable kits for the Caverstem and FemCelz procedures offset by lower per unit costs of the disposable kits.
General and Administrative Expenses.General and administrative expenses for the nine monthnine-month period ended September 30, 2018,2019, totaled $793,216,$912,182, in comparison with $748,379,$793,216, for the comparable period a year ago. The increase of $44,837,$118,966, or 6%15% is primarily due to ana $79,900 increase of $110,170 in marketing and $72,557a $60,000 increase in management fees offset by a $40,500 decrease in travel associated with the commercialization of the Caverstem procedure and an increase of $30,365 in business development expenses, offset by reductions of $142,235 in stock-based compensation, $22,836 in public company costs and $14,658 in legal fees.expenses.
Research and Development Expenses.Research and development expenses for the nine monthnine-month period ended September 30, 2018,2019, totaled $10,284$0 in comparison with $172,478$10,284, for the comparable period a year ago. The decrease of $162,464,$10,284, or 94%100% is primarily due to a decrease of$142,240 in clinicalthe completion of the pre-clinical research expenses associated withof the erectile dysfunction trial as the trial nears completion and a reduction of$22,224 in laboratory expenses.Amniostem®.
Other Income / Expense. Other expense for the nine monthnine-month period ended September 30, 2018,2019, totaled $14,796,123$2,492,144 in comparison with other expense of $250,053,$14,796,123, for the comparable period a year ago. The increasedecrease of $14,546,070,$12,303,979, or 5,817%83% is primarily due to an increasea reduction of $785,818 in interest expense, and a $14,256,897 expense increase$13,653,662 associated with the change in the fair value of derivative liabilities, offset by an increase of $506,643 in interest expense associated with a $496,645 gain on the extinguishment of convertible notes,higher debt balance in comparison to comparable period a year ago.
Net Loss. For the reasons stated above, our net loss for the nine monthnine-month period ended September 30, 20182019 totaled $15,590,004$3,291,723 in comparison to $1,181,899,$15,590,004, for the comparable quarterperiod a year ago.
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Liquidity and Capital Resources
Our principal source of liquidity has been funds received from the sale of our common stock and issuance of notes including convertible notes. Our experience to-date indicates the lenders are most likely to convert the debt into equity prior to or in lieu of full payment at maturity. Going forward, our short-term funding needs are expected to be satisfied by funds to be loaned to us by third parties and revenues generated from our Caverstem ED procedure.and FemCelz vaginal rejuvination procedures. Our long-term liquidity needs are expected to be satisfied from future offerings of our equity securities. It is possible that CMH may provide future financing for us. We do not have any arrangements, agreements, or sources for long-term funding.
Our only commitments for expenditures relate to the completion of the clinical study for the ED stem cell treatment and general and administrative costs, including reimbursements to our parent company for services performed by their executive officers on our behalf. During the next 12 months we also anticipate incurring expenses related to marketing activities for our ED treatment.and vaginal rejuvenation treatments.
For the next 12 months our plan of operations is to market the stem cell separator andour disposable kits, associated withpublish the Caverstem ED treatment and completeresults of the combined UCLA/LABiomed clinical trial. We estimate the coststrial and post-marketing patient results and partner with leading researchers on investigator-initiated trials to complete the clinical trials will be approximately $300,000, excluding overhead and other costs associated with maintainingadvance our company structure.neurological programs. We believe that our current cash on hand would meet our cash flow requirements for only a few more months. If we are unable to obtain further financing, we may seek alternative sources of funding or revise our business plan. We currently have no alternative sources for funding.
Our financial statements included with this report have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred substantial expenses and generated minimal revenues from operations during the periods covered by these financial statements. These factors raise substantial doubt about our ability to continue as a going concern. There is no assurance that we will be successful in meeting the continuing financial obligations of the company. Our financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Cash Flows
Net Cash used in Operating Activities.We used cash in our operating activities due to our losses from operations. Net cash used in operating activities was $756,639$960,661 for the nine monthnine-month period ended September 30, 20182019 in comparison to $766,902$756,639 for the comparable period a year ago, a decreasean increase of $10,263$204,022 or 1%27%. The decreaseincrease in cash used in operations was primarily related to a $10,000 decreaseincreases in accounts receivable.marketing expenses associated with commercialization of the Caverstem and FemCelz procedures combined with increased public company and shareholder-related expenses offset by expenditure reductions in travel and outside consultants
Net Cash used in Investing Activities.Activities.There was no cash used in investing activities in the nine month periodnine-month periods ended September 30, 2019 and September 30, 2018 and for the comparable period a year ago.respectively.
Net Cash From Financing Activities.In the nine monthnine-month period ended September 30, 2019, we raised $1,047,295 through the issuance of convertible debt, expended $194,111 to retire convertible debt and paid $38,343 in prepayment premiums on the retired convertible notes. In the nine-month period ended September 30, 2018, we raised $1,378,072 through the issuance of convertible and non-convertible debt, expended $405,294 to retire convertible debt, and paid $57,004 in prepayment premiums on the retired convertible notes. In the nine month period ended September 30, 2017, we raised $100,000 through the sale of common stock, $90,000 in proceeds from notes payable and $376,250 in proceeds from convertible notes. The increase$100,933 or 11% decrease in cash flows from financing activities were primarily related to timing of our need to obtain additional capital due marketing and travel expenses associated with the commercialization of the Caverstem ED procedure, increases in capital markets marketing costs and increased legal and accounting fees associated with public company reporting and audit requirements.financing activities.
Basis of Presentation / Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2018,2019, the Company had $172,832$158,236 of available cash and a working capital deficit of $7,522,727.$3,710,628. For the nine monthnine-month period ended September 30, 2018,2019, the Company had $66,800$169,900 in revenue, $15,590,004$799,579 in operating loss and used net cash for operating activities of $756,639.$960,661. These factors, among others, indicate that the Company may be unable to continue as a going concern for the next twelve months. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing as may be required, and ultimately to attain sufficient cash flow from operations to meet its obligations on a timely basis. Management is in the process of negotiating various financing plans including access to ongoing credit facilities and possible sale of capital stock either in private or in public offerings and believes these steps may generate sufficient cash flow for the Company to continue as a going concern. If the Company is unsuccessful in these efforts, it may be required to substantially curtail or terminate its operations.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13(a)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this reportare effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In April 2016, the Company entered into an agreement with a third party to perform banking services. The banking services did not materialize and thus the Company cancelled the agreement in June 2016. The Company and the third party are currently in a dispute as to fees under the agreement. The Company believes no consideration is due as the services were not performed. Any proposed litigation or equivalent will be vigorously defended for which the Company expects to prevail. The dispute is currently being litigated in an New York Supreme Court. As of the date of these financial statements the Company has not recorded a loss provision as the amount is not probable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Convertible Notes/Debentures
During the three-month periodnine-months ended September 30, 2018,2019, we issued aconvertible promissory notenotes in the face amount of $108,000 receiving proceeds of $106,500 and convertible promissory notes in the aggregate face amount of $681,750$1,575,400 to multiple lenders for which we received proceeds of $553,352. Of$1,047,295 and the proceeds received, $274,118 was used to pre-pay two notes dated June 27,2018 and August 8, 2018. In addition, $69,676extinguishment of princpial from the $108,000 note was rolled into the convertible promissory notes.9,698,736 warrants. The notes bear interest at rates ranging from 8% - 10%2% to 11% which would increase ranging fromup to 24% in the event of default and have maturity dates ranging from January 2019February 2020 through September 2019. Notes in the amount of $549,750August 2020. The notes are convertible at 65%rates ranging from 60% to 71% of either the average of the two lowest traded priceprices of our common stock during 20the prior 15 trading days preceding the conversion date or the average of the two lowest volume weighted average prices (VWAP) of our common stock during the prior 15 trading days preceding the conversion date. The Company hasWe have the option to redeem the note,notes, in whole or in part, on $553,300 of the face amount of the issued convertible promissory notes for premiums ranging from 0% to 130% of the outstanding principle and interest up to 30180 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.issuance. After 170180 days the right of prepaymentrepayment expires. Notes in the amount of $144,000 were convertible at a fixed conversion price of $0.025 and included within the share issuances discussed above. There were no prepayments allowed on these notes.
In connection with the transactions above, during the three-month period ended September 30, 2018, we issued to the lenders an aggregate of warrants to purchase 3,742,854 shares of our Common Stock exercisable at $0.088 per share terminating five years from the issuance dates. The warrants include cashless exercise provisions.
The issuance of these securities was made pursuant to Rule 506(b) of Regulation D promulgated by the SEC under the Securities Act as a transaction not involving any public offering. No selling commissions or other remuneration were paid in connection with the issuance of these shares.
From July, 1 2018 through September 30, 2018, we issued an aggregate of 40,834,394 shares upon the conversions of outstanding notes and 66,228,985 shares upon the cashless exercise of outstanding warrants. These conversions were made pursuant to the exemption provided by Section 3(a)(9) of the Securities Act of 1933. As a result of these issuances, we had outstanding 784,794,117 shares of common stock as of September 30, 2018.
| SEC Ref. No. | Title of Document | |
| 31.1 | Rule 13a-14(a) Certification by Principal Executive Officer | |
| 31.2 | Rule 13a-14(a) Certification by Principal Financial Officer | |
| 32.1 | Section 1350 Certification of Principal Executive Officer | |
| 32.2 | Section 1350 Certification of Principal Financial Officer | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 22 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Creative Medical Technology Holdings, Inc. | ||
| Date: November 14, | By | /s/ Timothy Warbington |
| Timothy Warbington, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 14, | By | /s/ Donald Dickerson |
| Donald Dickerson, Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| 23 |