UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X]QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
Commission File Number: 0-55081
KinerjaPay Corp.For the Quarterly Period Ended September 30, 2019
or
[ ]TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________ to _________
Commission file number:000-55081
KINERJAPAY CORP.
(Exact name of small business issuerregistrant as specified in its charter)
| Delaware | 42-1771817 | |
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
JI Multatuli, No. 8A Clyde Road Medan, Indonesia | ||
| 20151 | ||
| (Address of Principal Executive Offices) | ( |
+62-819-6016-168
(Registrant’s Telephone Number, Including Area Code: +62-819-6016-168telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) 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), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined inhas submitted electronically every Interactive Data File required to be submitted pursuant to Rule 12b-2405 of Regulation S-T (§232.405 of this chapter) during the Exchange Act)preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, (as definedor a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act) or a smaller reporting company.Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
On December 7, 2017 the Registrant had 11,661,036 shares of common stock outstanding.
| Non-accelerated filer | [X] | Smaller reporting company | [X] | |
| Emerging growth company | [ ] |
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 7(a)(2)(B) of the Securities Act: [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of exchange on which registered | ||
| None | N/A | N/A |
As of November 14, 2019, there were 73,219,090 shares of the registrant’s common stock outstanding.
KINERJAPAY CORP.
FORM 10-Q
FOR THE THREE AND NINE MONTHES ENDED SEPTEMBER 30, 2019
TABLE OF CONTENTS
| 2 |
PART I -– FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTSBack to Table of Contents
KINERJAPAY CORP. AND SUBSIDIARIES
As of September 30, 2017 (Unaudited) and December 31, 2016
Back to Table of ContentsCONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 60,488 | $ | 32,591 | ||||
| Restricted cash | 29,841 | 16,181 | ||||||
| Accounts receivable | 22,632 | - | ||||||
| Prepaid expenses | 11,448 | 28,966 | ||||||
| Total current assets | 124,409 | 77,738 | ||||||
| Equipment, net of accumulated depreciation of $2,217 and $289, respectively. | 13,636 | 3,845 | ||||||
| Intangible assets | 25,000 | - | ||||||
| Total assets | $ | 163,045 | $ | 81,583 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable - trade | $ | 2,782 | $ | 3,461 | ||||
| Accounts payable - related party | 51,849 | - | ||||||
| Tax payable | 907 | 95 | ||||||
| Accrued interest | 1,830 | - | ||||||
| Accrued expenses | 3 | 4,107 | ||||||
| Unissued stock subscriptions | - | 150,000 | ||||||
| Total current liabilities | 57,371 | 157,663 | ||||||
| Total liabilities | 57,371 | 157,663 | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued | - | - | ||||||
| Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 11,661,036 shares issued and outstanding at September 30, 2017 and 8,627,013 shares issued and outstanding at December 31, 2016 | 1,165 | 862 | ||||||
| Additional paid-in capital | 8,039,502 | 3,508,529 | ||||||
| Stock payable | 178,000 | - | ||||||
| Accumulated deficit | (8,113,752 | ) | (3,585,626 | ) | ||||
| Accumulated other comprehensive loss | 759 | 155 | ||||||
| Total stockholders’ equity (deficit) | 105,674 | (76,080 | ) | |||||
| Total liabilities and stockholders’ equity | $ | 163,045 | $ | 81,583 | ||||
| September 30, 2019 | December 31, 2018 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 427,164 | $ | 150,091 | ||||
| Accounts receivable, net | 17,860 | 5,778 | ||||||
| Accounts receivable - related party | - | 6,295 | ||||||
| Other receivable | 27,860 | 14,036 | ||||||
| Convertible notes receivable | 215,816 | 120,000 | ||||||
| Prepaid expenses and other assets, current portion | 1,553,390 | 79,012 | ||||||
| Inventory | 21,477 | 15,712 | ||||||
| Deposits | 61,087 | 10,861 | ||||||
| Total current assets | 2,324,654 | 401,785 | ||||||
| Prepaid expenses, net of amortization | 1,269,247 | - | ||||||
| Other asssets | - | 52,415 | ||||||
| Fixed assets, net of accumulated depreciation of $369,242 and $327,192, respectively | 713,942 | 649,698 | ||||||
| Total assets | $ | 4,307,843 | $ | 1,103,898 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 59,322 | $ | 52,555 | ||||
| Accrued expenses and interest | 357,076 | 87,270 | ||||||
| Tax payable | 5,672 | 12,198 | ||||||
| Payable to Related party | 737,383 | 758,221 | ||||||
| Promissory note, related party | 600,000 | 600,000 | ||||||
| Convertible debentures, net of discount of $1,616,012 and $435,000 as of September 30, 2019 and December 31, 2018, respectively | 1,576,123 | 1,304,853 | ||||||
| Derivative liability | 4,181,000 | 807,000 | ||||||
| Warrant liability | 1,590,000 | 374,000 | ||||||
| Total current liabilities | 9,106,576 | 3,996,097 | ||||||
| Promissory note, related party, less current portion | 302,091 | 600,000 | ||||||
| Total liabilities | 9,408,667 | 4,596,097 | ||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized: | ||||||||
| Series A Preferred Stock, 400,000 authorized, 0 and 200,000 issued and outstanding, respectively | - | 20 | ||||||
| Series B Preferred Stock, 500,000 authorized, 500,000 issued and outstanding | 50 | 50 | ||||||
| Series C Preferred Stock, 2,000,000 authorized, none issued and outstanding | - | - | ||||||
| Series D Preferred Stock, 200,000 authorized, 200,000 and none issued and outstanding, respectively | 20 | - | ||||||
| Series E Preferred Stock, 200,000 authorized, 200,000 and none issued and outstanding, respectively | 20 | - | ||||||
| Common stock, par value $0.0001 per share; 950,000,000 and 500,000,000 shares authorized; 64,452,815 and 22,089,033 issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 6,445 | 2,208 | ||||||
| Additional paid-in capital | 29,956,724 | 14,696,799 | ||||||
| Accumulated deficit | (35,166,542 | ) | (18,145,079 | ) | ||||
| Stock payable | 135,374 | 34,000 | ||||||
| Accumulated other comprehensive income | (32,915 | ) | (80,197 | ) | ||||
| Total stockholders’ deficit | (5,100,824 | ) | (3,492,199 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 4,307,843 | $ | 1,103,898 | ||||
SeeThe accompanying notes to unaudited interimare an integral part of these condensed consolidated financial statements.
KINERJAPAY CORP. AND SUBSIDIARIES
Consolidated Statements of OperationsCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
| For the | For the | For the | For the | |||||||||||||
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | |||||||||||||
| September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
| Revenue from services - related entity | $ | 1,763,608 | $ | - | $ | 1,914,358 | $ | - | ||||||||
| Costs related to service revenue | 1,842,985 | - | 2,002,073 | - | ||||||||||||
| Gross margin | (79,377 | ) | - | (87,715 | ) | - | ||||||||||
| Expenses: | ||||||||||||||||
| General and administrative | 444,732 | 363,434 | 3,993,974 | 2,444,238 | ||||||||||||
| Depreciation expense | 940 | 17 | 1,896 | 103 | ||||||||||||
| Total general and administrative expenses | 445,672 | 363,451 | 3,995,870 | 2,444,341 | ||||||||||||
| (Loss) from operations | (525,049 | ) | (363,451 | ) | (4,083,585 | ) | (2,444,341 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (1,830 | ) | (137 | ) | (1,844 | ) | (31 | ) | ||||||||
| Loss on debt conversion | - | - | (442,697 | ) | - | |||||||||||
| Loss on extinguishment of debt | - | - | - | (9,003 | ) | |||||||||||
| Total other costs and expenses | (1,830 | ) | (137 | ) | (444,541 | ) | (9,034 | ) | ||||||||
| Net loss before income taxes | (526,879 | ) | (363,588 | ) | (4,528,126 | ) | (2,453,375 | ) | ||||||||
| Income taxes | - | - | - | - | ||||||||||||
| Net loss | $ | (526,879 | ) | $ | (363,588 | ) | $ | (4,528,126 | ) | $ | (2,453,375 | ) | ||||
| Basic and diluted per share amounts: | ||||||||||||||||
| Basic and diluted net loss | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.39 | ) | $ | (0.33 | ) | ||||
| Weighted average shares outstanding (basic and diluted) | 12,718,139 | 8,195,491 | 11,530,039 | 7,405,638 | ||||||||||||
| For the Three Months ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||
| Revenue | $ | 98,485 | $ | 531,830 | $ | 360,539 | $ | 3,032,602 | ||||||||
| Cost of sales | 99,906 | 350,317 | 346,984 | 2,849,761 | ||||||||||||
| Gross profit | (1,421 | ) | 181,513 | 13,555 | 182,841 | |||||||||||
| Operating expenses: | ||||||||||||||||
| Marketing Expense | 30,806 | - | 149,504 | - | ||||||||||||
| General and administrative | 1,111,134 | 2,146,157 | 7,160,617 | 6,526,020 | ||||||||||||
| Depreciation | 16,473 | 68,957 | 42,050 | 71,008 | ||||||||||||
| Total operating expenses | 1,158,413 | 2,215,114 | 7,352,171 | 6,597,028 | ||||||||||||
| Operating loss before other income (expense) | (1,159,834 | ) | (2,033,601 | ) | (7,338,616 | ) | (6,414,187 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (168,455 | ) | (59,332 | ) | (339,490 | ) | (78,155 | ) | ||||||||
| Amortization of debt discount | (1,320,415 | ) | - | (3,278,988 | ) | - | ||||||||||
| Financing costs | (1,481,174 | ) | - | (3,153,679 | ) | - | ||||||||||
| Change in fair value of derivative liability | 181,000 | - | 343,417 | - | ||||||||||||
| Change in fair value of warrant liability | (589,000 | ) | - | (979,000 | ) | - | ||||||||||
| Penalties and loss on conversion of debt | (142,013 | ) | (1,270,417 | ) | (2,235,414 | ) | (1,396,433 | ) | ||||||||
| Other expenses | (151 | ) | 78,249 | (39,693 | ) | 24,486 | ||||||||||
| Total other income (expense) | (3,520,208 | ) | (1,251,500 | ) | (9,682,847 | ) | (1,450,102 | ) | ||||||||
| Loss before income taxes | (4,680,042 | ) | (3,285,101 | ) | (17,021,463 | ) | (7,864,289 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | $ | (4,680,042 | ) | $ | (3,285,101 | ) | $ | (17,021,463 | ) | $ | (7,864,289 | ) | ||||
| Other comprehensive loss adjustments, net of tax: | ||||||||||||||||
| Foreign currency translation adjustments | 47,282 | - | (32,915 | ) | - | |||||||||||
| Total other comprehensive loss, net of tax | 47,282 | - | (32,915 | ) | - | |||||||||||
| Total comprehensive loss, net of tax | (4,632,760 | ) | (3,285,101 | ) | (17,054,378 | ) | (7,864,289 | ) | ||||||||
| Loss per share - Basic and diluted | $ | (0.08 | ) | $ | (0.15 | ) | $ | (0.41 | ) | $ | (0.46 | ) | ||||
| Weighted average shares outstanding - Basic and diluted | 55,316,811 | 21,668,717 | 41,222,471 | 17,114,145 | ||||||||||||
SeeThe accompanying notes to unaudited interimare an integral part of these condensed consolidated financial statements.
KINERJAPAY CORP. AND SUBSIDIARIES
Consolidated Statements of Comprehensive LossCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
For the Three and Nine Months Ended September 30, 2017 and 2016
(Unaudited)
| Three months | Three months | Nine months | Nine months | |||||||||||||
| ended | ended | ended | ended | |||||||||||||
| September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
| Net loss | $ | (526,879 | ) | $ | (363,588 | ) | $ | (4,528,126 | ) | $ | (2,453,375 | ) | ||||
| Foreign currency translation adjustments | (115 | ) | 8,430 | (139 | ) | 8,656 | ||||||||||
| Total comprehensive loss, net of tax | $ | (526,994 | ) | $ | (355,158 | ) | $ | (4,528,265 | ) | $ | (2,444,719 | ) | ||||
| Accumulated | ||||||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-in | Stock | Accumulated | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | Deficit | Loss | Deficit | ||||||||||||||||||||||||||||
| Balance January 1, 2018 | 12,461,013 | 1,245 | - | - | 9,457,265 | 178,000 | (9,751,419 | ) | - | (114,909 | ) | |||||||||||||||||||||||||
| Issuance of Series A Preferred Stock for cash | 400,000 | 40 | 499,960 | 500,000 | ||||||||||||||||||||||||||||||||
| Issuance of Series B Preferred Stock for services | 500,000 | 50 | 870,950 | 871,000 | ||||||||||||||||||||||||||||||||
| Issuance of shares for cash | 20,000 | 2 | 49,998 | (50,000 | ) | - | ||||||||||||||||||||||||||||||
| Issuance of shares for services | 4,365,278 | 437 | 3,675,447 | (94,000 | ) | 3,581,884 | ||||||||||||||||||||||||||||||
| Issuance of shares upon conversion | 4,162,948 | 416 | 890,761 | 891,177 | ||||||||||||||||||||||||||||||||
| Acquisition of PT Kinerja Indonesia | (1,132,110 | ) | (1,132,110 | ) | ||||||||||||||||||||||||||||||||
| Penalties and loss on conversion of debt | 176,745 | 176,745 | ||||||||||||||||||||||||||||||||||
| Loss on modification of warrant exercise price | 71,117 | 71,117 | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon conversion of preferred stock | 416,667 | 42 | (200,000 | ) | (20 | ) | (22 | ) | - | |||||||||||||||||||||||||||
| Loss on modification of Series A preferred stock conversion price | 190,255 | 190,255 | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon exercise of warrants | 463,127 | 46 | 99,954 | 100,000 | ||||||||||||||||||||||||||||||||
| Issuance of shares in connection with convertible debt | 200,000 | 20 | 37,480 | 37,500 | ||||||||||||||||||||||||||||||||
| Warrants issued in connection convertible debt | 262,000 | 262,000 | ||||||||||||||||||||||||||||||||||
| Reclass of warrant fair value to liability classification | (514,000 | ) | (514,000 | ) | ||||||||||||||||||||||||||||||||
| Reclass of derivative liability upon conversion of related convertible debentures | 61,000 | 61,000 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (80,197 | ) | (80,197 | ) | ||||||||||||||||||||||||||||||||
| Net loss | (8,393,660 | ) | (8,393,660 | ) | ||||||||||||||||||||||||||||||||
| Balance December 31, 2018 | 22,089,033 | $ | 2,208 | 700,000 | $ | 70 | $ | 14,696,799 | $ | 34,000 | $ | (18,145,079 | ) | $ | (80,197 | ) | $ | (3,492,199 | ) | |||||||||||||||||
| Issuance of Series D Preferred Stock for acquisition of FRS | 200,000 | 20 | 2,372,925 | 2,372,945 | ||||||||||||||||||||||||||||||||
| Issuance of Series E Preferred Stock for services | 200,000 | 20 | 3,559,397 | 3,559,417 | ||||||||||||||||||||||||||||||||
| Issuance of shares and warrant units for cash | 70,000 | 70,000 | ||||||||||||||||||||||||||||||||||
| Issuance of shares for services | 3,450,000 | 345 | 1,037,855 | 1,038,200 | ||||||||||||||||||||||||||||||||
| Issuance of shares upon conversion | 7,562,896 | 756 | 719,366 | 720,122 | ||||||||||||||||||||||||||||||||
| Issuance of shares upon conversion of preferred stock | 400,000 | 40 | (64,000 | ) | (6 | ) | (34 | ) | - | |||||||||||||||||||||||||||
| Loss on modification of Series A preferred stock conversion price | 833,333 | 83 | 906,490 | 906,573 | ||||||||||||||||||||||||||||||||
| Warrants issued in connection convertible debt | 231,000 | 231,000 | ||||||||||||||||||||||||||||||||||
| Reclass of warrant fair value to liability classification | (231,000 | ) | (45,000 | ) | (276,000 | ) | ||||||||||||||||||||||||||||||
| Reclass of derivative liability upon conversion of related convertible debentures | 678,000 | 678,000 | ||||||||||||||||||||||||||||||||||
| Additional shares issued in conversion for penalties | 190,000 | 190,000 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 80,197 | 80,197 | ||||||||||||||||||||||||||||||||||
| Net loss | (8,068,031 | ) | (8,068,031 | ) | ||||||||||||||||||||||||||||||||
| Balance March 31, 2019 | 34,335,262 | $ | 3,432 | 1,036,000 | $ | 104 | $ | 24,160,798 | $ | 59,000 | $ | (26,213,110 | ) | $ | - | $ | (1,989,776 | ) | ||||||||||||||||||
| Issuance of shares for services | 550,000 | 55 | 266,945 | 315,000 | 582,000 | |||||||||||||||||||||||||||||||
| Issuance of shares upon conversion | 7,382,164 | 738 | 877,691 | 878,429 | ||||||||||||||||||||||||||||||||
| Shares not yet issued under subscription agreements | 76,374 | 76,374 | ||||||||||||||||||||||||||||||||||
| Issuance of shares upon exercise of warrants | 264,000 | 27 | (27 | ) | - | |||||||||||||||||||||||||||||||
| Issuance of shares upon conversion of preferred stock | 850,000 | 85 | (136,000 | ) | (14 | ) | (71 | ) | - | |||||||||||||||||||||||||||
| Loss on modification of Series A preferred stock conversion price | 428,400 | 428,400 | ||||||||||||||||||||||||||||||||||
| Issuance of shares in connection with convertible debt | 313,263 | 32 | 168,974 | 169,006 | ||||||||||||||||||||||||||||||||
| Reclass of warrant liability classification to equity upon exercise and expiration of warrants | 456,000 | 456,000 | ||||||||||||||||||||||||||||||||||
| Reclass of derivative liability upon conversion of related convertible debentures | 631,582 | 631,582 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (80,197 | ) | (80,197 | ) | ||||||||||||||||||||||||||||||||
| Net loss | (4,273,390 | ) | (4,273,390 | ) | ||||||||||||||||||||||||||||||||
| Balance June 30, 2019 | 43,694,689 | $ | 4,369 | 900,000 | $ | 90 | $ | 26,990,292 | $ | 450,374 | $ | (30,486,500 | ) | $ | (80,197 | ) | $ | (3,121,572 | ) | |||||||||||||||||
| Issuance of shares for services | 1,550,000 | 155 | 430,419 | (315,000 | ) | 115,574 | ||||||||||||||||||||||||||||||
| Issuance of shares upon conversion | 17,755,546 | 1,776 | 888,164 | 889,940 | ||||||||||||||||||||||||||||||||
| Issuance of shares upon exercise of warrants | 1,765,843 | 177 | (177 | ) | - | |||||||||||||||||||||||||||||||
| Return of shares which had been issued in connection with convertible debt | (313,263 | ) | (32 | ) | (168,974 | ) | (169,006 | ) | ||||||||||||||||||||||||||||
| Reclass of warrant liability classification to equity upon exercise of warrants | 317,000 | 317,000 | ||||||||||||||||||||||||||||||||||
| Reclass of derivative liability upon conversion or redemption of related convertible debentures | 1,500,000 | 1,500,000 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 47,282 | 47,282 | ||||||||||||||||||||||||||||||||||
| Net loss | (4,680,042 | ) | (4,680,042 | ) | ||||||||||||||||||||||||||||||||
| Balance September 30, 2019 | 64,452,815 | $ | 6,445 | 900,000 | $ | 90 | $ | 29,956,724 | $ | 135,374 | $ | (35,166,542 | ) | $ | (32,915 | ) | $ | (5,100,824 | ) | |||||||||||||||||
See
The accompanying notes to unaudited interimare an integral part of these condensed consolidated financial statements.
KINERJAPAY CORP. AND SUBSIDIARIES
Consolidated Statements of Cash FlowsCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2017 and 2016
(Unaudited)
| For the | For the | |||||||
| Nine Months Ended | Nine Months Ended | |||||||
| September 30, 2017 | September 30, 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (4,528,126 | ) | $ | (2,453,375 | ) | ||
| Adjustments required to reconcile net loss to cash used in operating activities: | ||||||||
| Shares issued for services | 2,097,751 | 1,508,133 | ||||||
| Loss on conversion of debt | 442,697 | - | ||||||
| Depreciation expense | 1,896 | 103 | ||||||
| Loss on extinguishment of debt | - | 9,003 | ||||||
| Share-based compensation | 1,116,829 | - | ||||||
| Changes in net assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | (22,632 | ) | - | |||||
| (Increase) decrease in other assets | (25,000 | ) | - | |||||
| (Increase) decrease in prepaid expenses | 17,518 | (4,616 | ) | |||||
| Increase (decrease) in accounts payable | (148,019 | ) | 31,230 | |||||
| Increase (decrease) in accrued liabilities | (2,274 | ) | 7,094 | |||||
| Net cash used in operating activities | (1,049,360 | ) | (902,428 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of equipment | (11,687 | ) | (2,720 | ) | ||||
| Cash used in investing activities | (11,687 | ) | (2,720 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | 952,000 | 804,987 | ||||||
| Payments on debt | - | (8,689 | ) | |||||
| Borrowings on debt - related party | 50,000 | - | ||||||
| Borrowings on debt | 100,000 | - | ||||||
| Net cash provided by financing activities | 1,102,000 | 796,298 | ||||||
| Foreign currency adjustment | 604 | 8,656 | ||||||
| Change in cash | 41,557 | (100,194 | ) | |||||
| Cash - Beginning of period | 48,772 | 250,194 | ||||||
| Cash - End of period | $ | 90,329 | $ | 150,000 | ||||
| Supplemental Cash Flow Disclosure: | ||||||||
| Non-cash transactions: | ||||||||
| Settlement of restricted cash with common stock | $ | - | $ | 250,013 | ||||
| Stock issued to settle debt | $ | 100,000 | $ | 15,750 | ||||
| For the Nine Months Ended | ||||||||
| September 30, 2019 | September 30, 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income loss | $ | (17,021,463 | ) | $ | (7,864,289 | ) | ||
| Adjustments to reconcile net income/(loss) to net cash used in operating activities: | ||||||||
| Depreciation | 42,050 | 71,009 | ||||||
| Amortization of debt discount | 3,278,988 | 169,395 | ||||||
| Issuance of shares for services | 1,735,774 | 3,336,440 | ||||||
| Change in fair value of derivative liability | (343,417 | ) | - | |||||
| Change in fair value of warrant liability | 979,000 | - | ||||||
| Penalties and loss on conversion of debt and preferred stock | 2,168,723 | 1,643,178 | ||||||
| Allowance for bad debt | 20,000 | - | ||||||
| Financing costs | 2,922,679 | - | ||||||
| Series B Preferred stock issued for services | 3,724,417 | - | ||||||
| Changes in net assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | (5,787 | ) | - | |||||
| (Increase) decrease in other receivable | (13,824 | ) | 8,766 | |||||
| (Increase) decrease in inventory | (5,765 | ) | (22,742 | ) | ||||
| (Increase) decrease in deposits | (50,227 | ) | - | |||||
| (Increase) decrease in prepaid expenses | (683,396 | ) | 8,273 | |||||
| (Increase) decrease in other assets | 200,130 | 153,615 | ||||||
| Increase (decrease) in accounts payable | 10,665 | (54,754 | ) | |||||
| Increase (decrease) in taxes payable | (6,525 | ) | - | |||||
| Increase (decrease) in accrued liabilities | 269,806 | (1,725 | ) | |||||
| Increase (decrease) in accrued interest | 156,081 | - | ||||||
| CASH USED IN OPERATING ACTIVITIES | (2,622,091 | ) | (2,552,834 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | (106,295 | ) | (14,194 | ) | ||||
| Cash paid for convertible notes receivable | (235,816 | ) | - | |||||
| Cash received from acquisition | - | 11,474 | ||||||
| CASH USED IN INVESTING ACTIVITIES | (342,111 | ) | (2,720 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments on promissory note | (297,909 | ) | - | |||||
| Related party debt | (20,838 | ) | - | |||||
| Proceeds from issuance of common stock | 146,374 | 500,000 | ||||||
| Proceeds on debt | - | 1,915,000 | ||||||
| Proceeds from convertible debentures | 3,599,866 | - | ||||||
| Payments on convertible debentures | (233,500 | ) | ||||||
| Proceeds from the exercise of warrants | - | 100,000 | ||||||
| CASH PROVIDED BY FINANCING ACTIVITIES | 3,193,993 | 2,515,000 | ||||||
| FOREIGN CURRENCY TRANSLATION ADJUSTMENT | 47,282 | (53,333 | ) | |||||
| NET CHANGE IN CASH | 277,072 | (93,887 | ) | |||||
| CASH AT BEGINNING OF YEAR | 150,091 | 160,629 | ||||||
| CASH AT END OF YEAR | $ | 427,164 | $ | 66,742 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest expense paid | $ | - | $ | - | ||||
| Non-cash Investment and Financing Activities: | ||||||||
| Common Stock issued for debt settlement | $ | - | $ | 711,684 | ||||
| Common shares issued upon conversion of debt | $ | 2,488,491 | $ | - | ||||
| Common shares issued upon conversion of preferred stock | 125 | 42 | ||||||
| Non-cash exercise of warrants | $ | 203 | $ | |||||
| Issuance of preferred shares for acquisition | $ | 2,372,945 | $ | - | ||||
SeeThe accompanying notes to unaudited interimare an integral part of these condensed consolidated financial statements.
KINERJAPAY CORP. AND SUBSIDIARIES
KINERJAPAY CORP.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(formerly Solarflex Corp.)Notes to Unaudited Consolidated Financial StatementsBack to Table of ContentsFOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
1. The Company and Significant Accounting Policies
Organizational BackgroundNote 1 – description of business
KinerjaPay Corp. (“Kinerja” or the(the “Company”) is a Delaware corporation, and commenced operations during the period ended September 30, 2017. The Company was incorporated under the laws of the State of Delaware on February 12, 2010. The business plan of the Company was to develop a commercial application of the design in a patent of a “Solar element and method of manufacturing the same”. On November 10, 2015 this plan was abandoned and all related contracts and agreements rescinded.
2010 as Solarflex Corp. On December 1, 2015, the Company entered into a license agreement with PTP.T. Kinerja Indonesia (“P.T. Kinerja” the “Licensor”), an entity organized under the laws of Indonesia and controlled by Mr. Edwin Ng, (“PT Kinerja”),the Company’s chairman, CEO and control stockholder, for an exclusive, world-wideworld- wide license to use and commercially exploit certain technology and intellectual property and its website, KinerjaPay.com. Pursuant to the License Agreement, the Company, as Licensee, was granted the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce platform that provides users with the convenience of e-wallet service for bill transfer and online shopping and is among the first portals to allow users the convenience to top-up phone credit. In conjunction with thethis agreement, the companyCompany changed its name from Solarflex Corp. to KinerjaPay Corp. On April 6, 2016, P.T. KinerjaPayKinerja Pay Indonesia, a wholly-owned subsidiary of the Company, was organized under the laws of Indonesia. PT KinerjaPay Indonesia is
On August 31, 2018, the Company completed its acquisition of its Licensor PT. Kinerja which became a wholly-owned subsidiary of the Company. The result of this acquisition enabled the Company to present its revenue on a gross basis as the principal going forward. Upon the closing of the acquisition of the Licensor by the Licensee, the License Agreement effectively ceased. In addition, the acquisition gave the Company the ability to consolidate its IP technology and both PT Kinerja Indonesia and PT KinerjaPay Indonesia are owned and controlled by Mr. Ng,manage its 1,500 square-feet data center located in North Sumatra which the Company plans to expand to provide cloud computing services as well as data mining from the Company’s CEOexisting customer base. The Company believes that the acquisition will make the Company more cost efficient and control shareholder, and are deemed to be related entities.potentially generate more revenues from other IT services.
The accompanying financial statements ofOn September 13, 2018, the Company were preparedincorporated PT. Kinerja Simpan Pinjam (“PT Kinerja SP”), a new wholly-owned subsidiary, for the purpose of managing its KFUND brand as a peer-to-peer (P2P) lending platform focusing on micro-lending activities. The Company plans to develop the KFUND brand mainly targeting the consumer sector to facilitate micro loans ranging from $100 to $1,000 on biweekly or monthly term. KFUND is still in the accountspreparation stage and is expected to start in the fourth quarter of 2019, or first quarter of 2020.
As one of Indonesia’s fintech P2P lending companies, PT. Kinerja SP is subject to supervision by the Financial Service Authority (Otoritas Jasa Keuangan – “OJK”) of Indonesia. OJK requested PT KSP to change its company name to comply with a recently issued regulation that states that a P2P company may not have the word “simpan” (meaning to save or to deposit) in its name because it is not allowed to deposit funds but is expected to channel funds by bringing together lenders and borrowers. Based on this requirement, the Company under the accrual basis of accounting.changed its name to PT Kinerja Sukses Gemilang (“PT Kinerja SG”), on August 30, 2019.
BasisOn February 28, 2019, Kinerja Pay Ltd.a wholly-owned subsidiary of Presentation:PT Kinerja, was incorporated in Nevada.The subsidiary has no employees or operations, aside from a bank account to receive cash proceeds from security purchase agreements and convertible debentures, which is then transferred to the Parent company or other subsidiaries.
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Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established sufficient revenue to cover its operating costs, and as such, has incurred an operating loss since inception. Further, as ofFor the nine months ended September 30, 2017, the cash resources of2019, the Company were insufficient to meet its current business plan.had a net loss of approximately $17,021,000. At September 30, 2019, the Company had an accumulated deficit of approximately $35,166,000 and a working capital deficit of approximately $6,782,000. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern.concern, within one year from the issuance date of this filing. The Company’s ability to continue as a going concern is dependent on its ability to raise the required additional capital or debt financing to meet short and long-term operating requirements. During the nine months ended September 30, 2019, the Company received net cash proceeds of approximately $3,600,000 from the issuance of new convertible debentures. Subsequent to September 30, 2019, the Company received approximately $429,000 in net cash proceeds from the issuance of new convertible debentures. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. The Company continues to pursue external financing alternatives to improve its working capital position. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Principles of Consolidation:Consolidation
The financial statements include the accounts of KinerjaPay Corp. and its wholly owned subsidiarysubsidiaries PT KinerjaPay, Indonesia.PT Kinerja, and PT Kinerja Simpan Pinjam. All significant inter-company balances and transactions have been eliminated.
Note 2 - Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial information as of and for the three and six months ended June 30, 2019 and 2018 has been prepared in accordance with GAAP in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the SEC on April 24, 2019.
The condensed consolidated balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
Use of Estimates:Estimates
The preparation of financial statements in conformity with accounting principles generally accepted accounting principlesin the United States requires management to make estimates and assumptionsjudgments that affect the reported amounts of assets, and liabilities, and related disclosure of contingent assets and liabilities at the date of the financial statement date and the reported amounts of revenues and expenses during the reporting period.periods. On an on-going basis, we evaluate our estimates, including those related to allowances for bad debt and inventory obsolescence, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other resources. Actual results couldmay differ from the estimates.these estimates under different assumptions or conditions.
Foreign Currency
Non-U.S. entity operations are recorded in the functional currency of each entity. Results of operations for non-U.S. dollar functional currency entities are translated into U.S. dollars using average currency rates or actual action date currency rate. Assets and liabilities are translated using currency rates at period end. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity.
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Cash and Cash Equivalents:Equivalents
For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of sixthree months or less to be cash or cash equivalents. There were no cash equivalents as of September 30, 20172019 and December 31, 2016.
Property and Equipment:
New property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 5 years. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.
Valuation of Long-Lived Assets:
We review the recoverability of our long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.
Stock-Based Compensation:
Stock-based awards are accounted for using the fair value method in accordance with ASC 718,Share-Based Payments. Our primary type of share-based compensation consists of stock options. We use the Black-Scholes option pricing model in valuing options. The inputs for the valuation analysis of the options include the market value of the Company’s common stock, the estimated volatility of the Company’s common stock, the exercise price of the warrants and the risk free interest rate.
Accounting For Obligations And Instruments Potentially To Be Settled In The Company’s Own Stock:
We account for obligations and instruments potentially to be settled in the Company’s stock in accordance with FASB ASC 815,Accounting for Derivative Financial Instruments.This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company’s own stock.2018.
Fair Value of Financial Instruments:Instruments
FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At September 30, 20172019 and December 31, 2016,2018, the carrying value of certain financial instruments (cash, and cash equivalents, accounts payable and accrued expenses.)expenses, and notes payable) approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current rates.
Fair Value Measurements:Measurements
The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which
A three-tier fair value hierarchy is used to prioritize the inputs used in measuring fair value are:as follows:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2: Inputs to the valuation methodology include:
- Quoted prices for similar assets or liabilities in active markets;
- Quoted prices for identical or similar assets or liabilities in inactive markets;
- Inputs other than quoted prices that are observable for the asset or liability;
- Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
| Level 1 | Quoted prices in active markets for identical assets or liabilities. |
| Level 2 | Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly. |
| Level 3 | Significant unobservable inputs that cannot be corroborated by market data. |
The assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following table presentsCompany did not have any Level 1 or Level 2 assets that were measured and recognizeliabilities at fair value on September 30, 20172019 or December 31, 2018. The derivative and warrant liabilities at September 30, 2019 and December 31, 20162018, are Level 3 fair value measurements.
The table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as Level 3 for the nine months ended September 30, 2019:
| 2019 | ||||
| Balance at beginning of the period | $ | 807,000 | ||
| Initial recognition of conversion feature | 5,160,000 | |||
| Additions for increases in principal | 1,367,000 | |||
| Reclassification to equity | (2,810,000 | ) | ||
| Change in fair value | (343,000 | ) | ||
| Balance at end of the period | $ | 4,181,000 | ||
At September 30, 2019, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on weighted probabilities of assumptions used in the Black-Scholes pricing model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield of a Treasury note and expected volatility of the Company’s common stock all as of the measurement dates, and the years then ended on a recurring basis:various estimated reset exercise prices weighted by probability.
Fair Value Measurements atThe table below sets forth a summary of the changes in the fair value of the Company’s warrant liabilities classified as Level 3 for the nine months ended September 30, 20172019:
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| 2019 | ||||
| Balance at beginning of the period | $ | 374,000 | ||
| Initial recognition of warrant liability | 1,010,000 | |||
| Reclassed to equity upon exercise | (455,000 | ) | ||
| Reclassed to equity upon expiration | (318,000 | ) | ||
| Change in fair value | 979,000 | |||
| Balance at end of the period | $ | 1,590,000 | ||
Fair Value Measurements at December 31, 2016At September 30, 2019, the Company estimated the fair value of the warrant liabilities based on the Black Scholes pricing model. The key valuation assumptions used consists, in part, of the price of the Company’s common stock, a risk-free interest rate based on the average yield of a Treasury note and expected volatility of the Company’s common stock all as of the measurement dates.
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When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended September 30, 20172019 and December 31, 2016,2018, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.
Revenue Recognition:
Our principal products and services are: (i) our electronic payment service (“EPS”) and (ii) our virtual marketplace both of which are available on our portal under the domain name KinerjaMall.com. Through our Portal and Mobile App we provide EPS to consumers and merchants. Our EPS provides an affordable, secure and reliable method to consumers and merchants, as well as friends and family, to pay and transfer money using electronic devices (e.g., mobile, tablets and personal computers). In addition, consumers, merchants and businesses of all sizes can accept payments from merchant websites and mobile devices. Our EPS service enables consumers to conveniently pay utility bills, phone bills, credit card payments and add credit to their cell phone accounts. We developed a proprietary digital e-wallet software, which provides users with the ability to complete EPS transactions safely and conveniently. The e-wallet acts as an escrow account as payments will only be released to the seller once the buyer has received the product. Revenue from sales of products in our marketplace (KinerjaMall.com) and remittance services are net commission earned, whereas we book gross revenue from sales of prepaid phone pulse, data plan, prepaid electricity token and utility bills (water and electricity). Revenue from net commission contributed less than 1% of the total revenue generated.
The Company purchases data, prepaid mobile plans, and more from a list of vendors that specialize in these transactions. We have a risk of loss as we are buying the plans without the right to return them, therefore we are a principal to the transaction and not an agent. Based upon this, gross revenue treatment appears reasonable for these transactions.
Both PT Kinerja and PT KinerjaPay Indonesia, the Company’s subsidiary created under the laws of Indonesia, are owned and controlled by Mr. Ng, and considered related. All revenue is earned by PT Kinerja, and then transferred to us either gross or net depending on the revenue transaction.
We pay transaction fees as follows: (i) 3.9% + $0.30 when senders fund payment transactions using PayPal; (ii) no fees when customers fund payment transactions by electronic transfer of funds from a bank accounts; and (iii) fees of $0.25 to $0.50 per transaction if customers fund payment transactions by using a third party payment gateway. To date, 0%, 80% and 20%, respectively, of our fees are represented by transactions (i), (ii) and (iii), respectively.
Accounts Receivable
Accounts receivable consist primarily of trade receivables. The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s trade accounts receivable. As of September 30, 2017, the Company had $22,632 in accounts receivable due from customer sales on the Company’s Portal which have not yet been collected. The allowance for doubtful trade receivables was $0 as of September 30, 2017 as we believe all of our receivables are less than 30 days old, and are fully collectable.
Earnings per Common Share:
We computeThe Company computes net income (loss) per share in accordance with ASC 260,Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement.Share. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. For the three and nine months ended September 30, 2019, the Company had approximately $2,878,000 in convertible debentures whose approximately 16,552,000 underlying shares are convertible at the holders’ option at conversion prices ranging from – a fixed conversion price of $1.75 to a variable conversion rate of 45% to 65% of the defined trading price and approximately 3,516,000 warrants with an exercise price of $3.00 to $0.20, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive. For the three and nine months ended September 30, 2018, the Company had approximately $864,000 in convertible debentures whose approximately 1,477,000 underlying shares are convertible at the holders’ option at conversion prices ranging from – 60% to 65% of the defined trading price and approximately 4,155,000 warrants with an exercise price of $3.00 to $1.00, which were not included in the calculation of diluted EPS as their effect would be anti-dilutive.
Common Stock Split:Revenue from Purchased Products
On January 15, 2016 we declaredThe Company has eight different revenue products, including, Mobile phone prepaid, Kinerja Store, Payment Gateway Services, Instant Pay Fees Collection, Marketplace Merchant Partners, Marketplace Merchant Users, Remittance, and Unipin. To date substantially all the revenue has been earned in the mobile home prepaid product.
The Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a reverse splitcustomer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of our common stock. The formula provided that every thirty (30) issuedan arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and outstanding shares of common stockdeterminable; and (4) the collectability of the Corporation be automatically split into one (1) share of common stock. The reverse split was effective upon receipt of approval from FINRA. Except as otherwise noted, all share, option and warrant numbers have been restated to give retroactive effect to this split. All per share disclosures retroactively reflect post-split shares.fee is reasonably assured.
Income Taxes:
We have adoptedPursuant to ASC 740,Accounting for Income Taxes.TaxesPursuant to ASC 740, we are ,the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
WeThe Company must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of our net deferred tax assets is dependent upon ourthe Company generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We haveManagement has determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance against substantially all of our net deferred tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance. If ourtheir assessment of the deferred tax assets or the corresponding valuation allowance were to change, wethe Company would record the related adjustment to income during the period in which we make the determination. Ourdetermination is made. The tax rate may also vary based on ourthe results and the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.
In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and to the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we will reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We will record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.Company operates.
ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.
In addition, the Company’s management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes.
Uncertain Tax Positions:Recent Accounting Pronouncements
When tax returns are filed, it is highly certainIn February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842) The standard requires all leases that some positions taken wouldhave a term of over 12 months to be sustained upon examination byrecognized on the taxing authorities, while others are subjectbalance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to uncertainty aboutbe paid over the meritsterm. Recognition of the position takencosts of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the amountlease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the position that wouldright-of-use asset) and interest expense (for interest on the lease liability). This standard will be ultimately sustained. In accordance witheffective for our interim and annual periods beginning January 1, 2019 and must be applied on a modified retrospective basis to leases existing at, or entered into after, the guidancebeginning of FASB ASC 740-10,Accounting for Uncertain Income Tax Positions, the benefit of a tax position is recognizedearliest comparative period presented in the financial statements in the period during which, basedstatements. The Company adopted ASC 842 on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregatedJanuary 1, 2019, with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.no impact on their financial statements.
Our federal and state income tax returns are open for fiscal years ending on or after December 31, 2013. We are not under examination by any jurisdiction for any tax year. At September 30, 2017 we had no material unrecognized tax benefits and no adjustments to liabilities or operations were required under FASB ASC 740-10.
Recent Issued Accounting Standards
Effective January, 2017, the Company adopted Accounting Standards Update (ASU) No. 2015-17, Income Taxes (Topic 740): Balance Sheet ClassificationManagement’s Evaluation of Deferred Taxes, which changes how deferred taxes are classified in organizations’ balance sheets. The ASU eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, all deferred tax assets and liabilities will be required to be classified as noncurrent. The amendments apply to all organizations that present a classified balance sheet. For public companies, the amendments are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods (i.e., in the first quarter of 2017 for calendar year-end companies). Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The guidance may be applied either prospectively, for all deferred tax assets and liabilities, or retrospectively (i.e., by reclassifying the comparative balance sheet). If applied prospectively, entities are required to include a statement that prior periods were not retrospectively adjusted. If applied retrospectively, entities are also required to include quantitative information about the effects of the change on prior periods. The adoption of this ASU did not have a significant impact on the condensed consolidated financial statements.
Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.
Effective January, 2017, the Company adopted Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.
Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments also simplify two areas specific to private companies.
For public business entities, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period periods (i.e., in the first quarter of 2017 for calendar year-end companies).Subsequent Events
The adoptionCompany evaluates events that have occurred after the balance sheet date of these ASU’sSeptember 30, 2019, through the date which the consolidated financial statements were issued. Based upon the review, other than described in Note 10 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have a significant impact onrequired adjustment or disclosure in the consolidated financial statements.
Note 3 – CONVERTIBLE NOTES RECEIVABLE
On May 29, 2019 the Company entered into a convertible note receivable with Oncolix, Inc in the principal amount of $20,000, with a maturity date of November 29, 2019. The note bears interest at 12%, which increases to 22% upon an event of default. In certain events of default as set forth in the note, the outstanding principal balance increases by 50%. During 2016, the FASB issued several Accounting Standard Updates that focuses on certain implementation issuesfirst 180 days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the new revenue recognition guidance including Narrow-Scope Improvementsprincipal and Practical Expedients, Principal versus Agent Considerations and Identifying Performance Obligations and Licensing. An entity should applyaccrued interest balance, based on the amendments in this ASU using oneredemption date’s passage of the following two methods:
1. Retrospectively to each prior reporting period presented with a possibility to elect certain practical expedients, or,
2. Retrospectively with the cumulative effect of initially applying ASU 2014-09 recognized attime from the date of initial application. Ifissuance of the debenture. The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price of 50% of the lowest trading price of Oncolix, Inc.’s common stock over the thirty days prior to the conversion date.
As disclosed in a Form 8K filed with the SEC on July 3, 2019, on July 2, 2019, Oncolix received a final notice of default under a license agreement with its product candidate. Additionally disclosed, was that Oncolix has been unable to finance its continuing operations and can no longer meet its continuing obligations, and as such substantially all of its remaining assets are pledged to the holders of its convertible notes. Therefore, the Company has fully reserved this amount due under the convertible note receivable.
On June 3, 2019 the Company acquired from Power Up Lending Group LTD, one of their noteholders (Note 6), a convertible note receivable with Mineral Mountain Mining & Mining (“MMMM”), for a purchase price of $96,816, with a maturity date of November 30, 2019. The note bears interest at 12%, which increases to 22% upon an entity electsevent of default. In certain events of default as set forth in the latter transition method, itnote, the outstanding principal balance increases by 50%. The note is convertible at a variable conversion price of 58% of the average of the lowest two trading prices of MMMM’s common stock over the fifteen days prior to the conversion date.
On July 1, 2019 the Company entered into a second convertible note receivable with MMMM in the principal amount of $34,000, with a maturity date of April 7, 2020. The note bears interest at 10%, which increases to 22% upon an event of default. In certain events of default as set forth in the note, the outstanding principal balance increases by 50%. During the first 180 days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price of 50% of the lowest trading price of MMMM, Inc.’s common stock over the thirty days prior to the conversion date.
On September 9, 2019 the Company entered into a convertible note receivable with Accelerated Pharma, Inc. in the principal amount of $20,000, with a maturity date of April 9, 2020. The note bears interest at 10%, which increases to 22% upon an event of default. In certain events of default as set forth in the note, the outstanding principal balance increases by 50%. During the first 180 days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price of 50% of the lowest trading price of Accelerated Pharma, Inc.’s common stock over the thirty days prior to the conversion date.
On September 23, 2019 the Company entered into a convertible note receivable with Bigfoot Project Investments, Inc. (“Bigfoot”) in the principal amount of $20,000, with a maturity date of March 23, 2020. The note bears interest at 10%, which increases to 22% upon an event of default. In certain events of default as set forth in the note, the outstanding principal balance increases by 50%. During the first 180 days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price of 50% of the lowest trading price of Bigfoot’s common stock over the thirty days prior to the conversion date.
On September 27, 2019 the Company entered into a convertible note receivable with GEX Management, Inc. (“GEX”) in the principal amount of $45,000, with a maturity date of March 27, 2020. The note bears interest at 10%, which increases to 22% upon an event of default. In certain events of default as set forth in the note, the outstanding principal balance increases by 50%. During the first 180 days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price of 50% of the lowest trading price of Gex’s common stock over the thirty days prior to the conversion date.
Note 4 – Prepaid expenses and Other Assets
Included in prepaid expenses is the long term portion of preferred shares issued in connection with the FRS acquisition and related employment agreement (See Note 8).
Also included in Prepaid expenses and other assets, current portion is $247,000 paid as finder’s fees in connection with an expected equity investment in the Company and a related standby letter of credit. The amount will be offset against the investment in equity when the transaction closes.
At December 31, 2018 other assets also should provide certain additional disclosures.included $31,815 of the unamortized balance related to an agreement entered into on July 31, 2017, with Ace Legends Pte. Ltd. in connection with a partnership in game development, for a period of 18 months. The agreement was amended to commence on December 1, 2017. The agreement called for the Company to pay $100,000 in cash and to issue 80,000 shares of common stock of the Company. The shares were valued at $128,000, based on the trading value of the common stock of the Company on the date of the agreement. As of September 30, 2019, the balance was fully amortized. For the nine months ended September 30, 2019 and 2018, $31,815 and $57,865, respectively, of amortization expense has been recognized.
Note 5 - Fixed Assets
Fixed assets consist of the following:
| September 30, 2019 | December 31, 2018 | |||||||
| Building | $ | 788,323 | $ | 729,760 | ||||
| Vehicles | 27,495 | 26,713 | ||||||
| Office Equipment and Furniture | 267,366 | 220,417 | ||||||
| 1,083,184 | 976,890 | |||||||
| Less: Accumulated Depreciation | (369,242 | ) | (327,192 | ) | ||||
| $ | 713,942 | $ | 649,698 | |||||
Depreciation expense for the nine months ended September 30, 2019 and 2018 was $42,050 and $71,008, respectively.
For a public business entity, the amendments in ASU 2014-09 (including the amendments introduced through recent ASU’s) are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period (the first quarter of fiscal year 2018 for the Company). Early application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
The Company intends to adopt ASU 2014-09 as of January 1, 2018.
The Company is in the process of evaluating the impact of ASU 2014-09 on its revenue streams and selling contracts, if any, and on its financial reporting and disclosures. Management is expecting to complete the evaluation of the impact of the accounting and disclosure changes on the business processes, controls and systems throughout 2017. Since the Company did not report so far, material revenues, management believes that the adoption of ASU 2014-09 will not have significant impact on its financial statements.Note 6 – Convertible Notes Payable
2. Stockholders’ EquityPower Up January 2, 2019 note
On January 2, 2019, the Company executed an 12% convertible promissory note payable to Power Up Lending, LLC in the principal amount of $43,000, which is due on October 30, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2016, we amended our certificate2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $21,500. As a result the outstanding balance of incorporationthe note as of June 30, 2019, was $64,500. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to increasehave authorized capitaland reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to include 10 million shares140% of $.0001 parthe principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
The derivative liability was recognized on July 1, 2019, in the initial amount of $81,000 based on the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.23; a risk-free interest rate of 2.21% and expected volatility of the Company’s common stock, of 172.14%, and the various estimated reset exercise prices weighted by probability.
On July 2, 2019, the Company exercised its option to redeem the January 2, 2019 debenture, for a redemption price at $85,000. The principal of $43,000 was derecognized with the additional $42,000 paid upon redemption recognized as a financing cost. The holder did not require the inclusion of the default penalty recognized by the Company on April 15, 2019, as such, the penalty was reversed upon the redemption. As a result of the redemption, the unamortized discount related to the redeemed balance of $64,500 was immediately expensed. As the derivative was originally valued and recognized on July 1, 2019, there was no change in fair value preferred shares. No preferred shares have been issued.upon redemption and reclassification of the derivative into equity.
IssuanceTangiers Global January 18, 2019 note
On January 18, 2019, the Company entered into a convertible note with Tangiers Global, LLC (“Tangiers”) for the principal amount of Shares$165,000, with an OID of $15,000, convertible into shares of common stock of the Company, which matures on January 18, 2020. The note bears interest at 10%, which increases to 20% upon an event of default. In an event of default as set forth in the note, the outstanding principal balance increases by 40%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $66,000. As a result the outstanding balance of the note as of June 30, 2019, was $231,000. On August 6, 2019, the Tangiers note was purchased from Tangiers by three other noteholders for a purchase price of $254,000, which included the default penalty and accrued interest. The note is convertible at 65% multiplied by the lowest closing price during the 15 days prior to the conversion. The discount increases by 5% discount if there is a DTC “chill” in effect., and an additional 5% if the Company is not DWAC eligible. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $228,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.08 at issuance date; a risk-free interest rate of 2.60% and expected volatility of the Company’s common stock, of 148.69%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $63,000 was immediately expensed as financing costs.
On various dates in August and September 2019, $165,508 of principal and $10,000 of accrued interest and fees of the note was converted by the new holders into 3,915,217 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of $280,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, with no change in the fair value, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.21; a risk-free interest rate of 2.33% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise prices weighted by probability.
Armada Investment Fund January 25, 2019 note
On January 25, 2019, the Company entered into a convertible note with Armada Investment Fund LLC for the principal amount of $38,500 for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
In connection with the Armada note dated January 25, 2019, the Company issued 115,500 warrants, exercisable at $0.49, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.66 at issuance date; a risk-free interest rate of 2.23% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $72,000.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $39,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.05 at issuance date; a risk-free interest rate of 2.60% and expected volatility of the Company’s common stock, of 177.54%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $72,500 was immediately expensed as financing costs.
The Armada January 2019 note was fully converted on August 1, 2019, into 1,087,685 shares of the Company’s common stock at a conversion price of $0.06, at which time the derivative fair value of approximately $66,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of approximately $9,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.17; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
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Jefferson Street Capital January 25, 2019 note
On January 25, 2019, the Company entered into a convertible note with Jefferson Street Capital LLC for the principal amount of $38,500 for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In connection with the Jefferson note dated January 25, 2019, the Company issued 115,500 warrants, exercisable at $0.49, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.66 at issuance date; a risk-free interest rate of 2.23% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $72,000.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $39,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.05 at issuance date; a risk-free interest rate of 2.60% and expected volatility of the Company’s common stock, of 177.54%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $72,500 was immediately expensed as financing costs.
On various dates in August and September 2019, the Jefferson Street January 2019 note was fully converted into 2,015,812 shares of the Company’s common stock at conversion prices ranging from of $0.04 to $0.06, at which time the derivative fair value of $70,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $5,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the dates of conversion; a risk-free interest rate of 2.29% and expected volatility of the Company’s common stock of 210.34%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
BHP Capital January 25, 2019 note
On January 25, 2019, the Company entered into a convertible note with BHP Capital NY, Inc. for the principal amount of $38,500 for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
In connection with the BHP note dated January 25, 2019, the Company issued 115,500 warrants, exercisable at $0.49, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.66 at issuance date; a risk-free interest rate of 2.23% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $72,000.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $39,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.05 at issuance date; a risk-free interest rate of 2.60% and expected volatility of the Company’s common stock, of 177.54%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $72,500 was immediately expensed as financing costs.
The BHP January 2019 note was fully converted on August 1, 2019, into 1,107,685 shares of the Company’s common stock at a conversion price of $0.06, at which time the derivative fair value of approximately $66,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of approximately $9,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.17; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
Power Up January 28, 2019 note
On January 28, 2019, the Company executed an 12% convertible promissory note payable to Power Up Lending, LLC in the principal amount of $48,000, which is due on November 30, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $24,000. As a result the outstanding balance of the note as of June 30, 2019, was $72,000. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
The derivative liability was recognized on July 27, 2019, in the initial amount of $90,000 based on the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.23; a risk-free interest rate of 2.12% and expected volatility of the Company’s common stock, of 172.14%, and the various estimated reset exercise prices weighted by probability.
On several dates in August 2019, $45,000 of the PowerUp January 28, 2019 note was converted into 702,028 shares of the Company’s common stock, at which time the derivative fair value of approximately $49,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $12,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.12; a risk-free interest rate of 2.45% and expected volatility of the Company’s common stock of 203.81%, and the various estimated reset exercise prices weighted by probability.
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Crossover Capital Fund February 28, 2019 note
On February 28, 2019, the Company executed an 10% fixed convertible promissory note payable to Crossover Capital Fund I, LLC in the principal amount of $115,000 with a $10,000 OID, which is due on November 28, 2019. In the case of a sale event, as defined in the agreement, the principal amount of the note increases to 150%. The note is convertible into shares of Common Stock at a conversion price of the lower of (i) $1.00 per share or (ii) 65% of the lowest trading price for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount increases 10% if there is a DTC “chill” in effect. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 125% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. The conversion feature met the definition of a derivative and required bifurcation and to be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $119,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.07 at issuance date; a risk-free interest rate of 2.54% and expected volatility of the Company’s common stock, of 181.78%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $4,000 was immediately expensed as financing costs.
On September 6, 2019, the Crossover note was fully converted into 2,219,872 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $139,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $109,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.13; a risk-free interest rate of 2.33% and expected volatility of the Company’s common stock of 210.34%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
Morningview Financial March 4, 2019 note
On March 4, 2019, the Company executed an 8% fixed convertible promissory note payable to Morningview Financial, LLC in the principal amount of $55,000 with a $5,000 OID, for a purchase price of $50,000, which is due on March 5, 2020. In the case of an event of default, as defined in the agreement, the principal amount of the note increases to 150%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a result the outstanding balance of the note as of June 30, 2019, was $82,500. The note is convertible into shares of Common Stock at a conversion price of 65% of the market price, as defined in the note. The discount increases 15% if there is an event of default, and 10% if the shares are not deliverable via DWAC. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. The conversion feature met the definition of a derivative and required bifurcation and to be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $61,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.54% and expected volatility of the Company’s common stock, of 181.78%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $6,000 was immediately expensed as financing costs.
On September 6, 2019, the Morningview note was fully converted into 1,786,022 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $110,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $14,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.13; a risk-free interest rate of 2.27% and expected volatility of the Company’s common stock of 193.89%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
Power Up March 5, 2019 note
On March 5, 2019, the Company executed an 12% convertible promissory note payable to Power Up Lending, LLC in the principal amount of $53,000, which is due on January 15, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $26,500. As a result the outstanding balance of the note as of June 30, 2019, was $79,500. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
The derivative liability was recognized on September 1, 2019, in the initial amount of $70,000 based on the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.17; a risk-free interest rate of 1.98% and expected volatility of the Company’s common stock, of 210.34%, and the various estimated reset exercise prices weighted by probability.
On September 7, 2019, the Company exercised its option to redeem the March 5, 2019 debenture, for a redemption price at $84,286. The principal of $53,000 was derecognized with the additional $31,286 paid upon redemption recognized as a financing cost. As a result of the redemption, the unamortized discount related to the converted balance of $53,000 was immediately expensed. As the derivative was originally valued and recognized on September 1, 2019, there was no change in fair value upon redemption and reclassification of the derivative into equity.
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JSJ Investments March 14, 2019 note
On March 14, 2019, the Company entered into a 12% convertible note for the principal amount of $118,000 with JSJ Investments, Inc, which matures on March 14, 2020, and has a $5,000 OID. The holder will also deduct $13,000 from the purchase price for legal and due diligence fees. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable conversion rate at 60% of market price (as defined in the note). The conversion rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt of a conversion request. In an event of default, as defined in the note, the “default amount” shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by (B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded at any time between the issuance date and the date of the event of default. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible, either 180 days after issuance or upon an event of default.
The derivative liability was recognized on September 10, 2019, in the initial amount of $175,000 based on the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.13; a risk-free interest rate of 1.89% and expected volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability.
On September 18, 2019, $60,000 of the JSJ March 14, 2019 note was converted into 813,008 shares of the Company’s common stock at which time the derivative fair value of approximately $89,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in no change in the fair value, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.14; a risk-free interest rate of 2.27% and expected volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability.
Belridge Capital March 25, 2019 note
On March 25, 2019, the Company executed an 8% convertible promissory note payable to Belridge Capital L.P. in the principal amount of $137,500, for a purchase price of $125,000, which is due on March 24, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 18%, and the default sum due becomes 130% of the principal outstanding and accrued interest (the “default redemption amount”). Alternatively, at the election of the holder, the Holder may require the Company to redeem all or part of the default redemption amount through the issuance of such number of shares of common stock equal to (x) the default redemption amount, divided by (y) or 55% of the lowest traded price in the 20 trading days prior to the conversion date. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $41,250. As a result the outstanding balance of the note as of June 30, 2019, was $178,750. The note is convertible into shares of common stock at a conversion price of the lower of (i) $1.00 per share or (ii) 61% of the lowest trading price for the 20 prior trading days prior to the conversion date. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The Company may redeem the note at any time the note is outstanding and there is not an event of default, at amounts ranging in the first 90 days from the date of issuance from 115% to 135% of the principal and accrued interest balance, based on the redemption date’s passage of time. The note also includes a “most favored nation” clause, whereby when the Company enters into any future financing transactions with a third-party investor, the Company must provide the holder notification of the terms of the new financing transaction, and if the holder determines that the terms of the subsequent investment are preferable to the original terms of the March 25, 2019 convertible promissory note, the original terms of the note will be amended and restated, which may include the conversion terms. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $165,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.46 at issuance date; a risk-free interest rate of 2.41% and expected volatility of the Company’s common stock, of 181.78%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $27,500 was immediately expensed as financing costs.
On September 24, 2019, the Company exercised its option to redeem the debenture, for a redemption price at $192,582, 135% of the principal and accrued interest amount. The principal of $137,500 plus accrued interest was derecognized with the additional $49,929 paid upon redemption recognized as a financing cost. As a result of the redemption, the unamortized discount related to the converted balance of $103,125 was immediately expensed. Additionally, the derivative was remeasured upon redemption of the debenture, resulting in an estimated fair value of $259,000, for an increase in fair value of $7,000. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.13; a risk-free interest rate of 1.92% and expected volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability.
Power Up April 1, 2019 note
On April 1, 2019, the Company executed a 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount of $43,000, and is due on February 15, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $21,500. As a result the outstanding balance of the note as of June 30, 2019, was $64,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion price of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall equal the lesser of: (i) $1.75; and (ii) 61% multiplied by the market price, as defined in the agreement. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days, but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
The derivative liability was recognized on September 28, 2019, in the initial amount of $93,000 based on the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.12; a risk-free interest rate of 1.83% and expected volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability.
Tiger Trout Capital April 25, 2019 note
On April 25, 2019, the Company executed an 8% fixed convertible promissory note payable to Tiger Trout Capital, LLC in the principal amount of $110,000, and is due on May 17, 2020. The convertible note had a OID of $10,000, for a purchase price of $100,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 18%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On May 20, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $55,000. As a result the outstanding balance of the note as of June 30, 2019, was $165,000. On September 17, 2019, the outstanding note was acquired from Tiger Trout by Adar Alef, LLC. The note is convertible into shares of Common Stock at 65% of the lowest trading price of the common stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The conversion price is adjusted if any 3rd party has the right to convert monies at a discount to market greater than the conversion price in effect at that time then the holder, may utilize such greater discount percentage. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Additionally, upon an event of default the conversion rate increases to 55% of the lowest trading price during the 20 days prior to conversion. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The Company may redeem the note at amounts ranging from 110% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $163,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.64 at issuance date; a risk-free interest rate of 2.42% and expected volatility of the Company’s common stock, of 176.09%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $53,000 was immediately expensed as financing costs.
Labrys Fund May 9, 2019 note
On May 9, 2019, the Company entered into a 12% convertible promissory note with Labrys Fund LP (“Labrys”) for $282,000, which matures on November 6, 2019. The interest rate increases to a default rate of 24% for events as set forth in the agreement, including if the market capitalization is below $5 million, or there are any dilutive issuances. There is a right of prepayment in the first 180 days, but there is no right to repay after 180 days. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. There is also a cross default provision to all other notes. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. On May 20, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $141,000. On September 18, 2019, the outstanding note was acquired from Labrys by Granite Global Value Investments, LTD, consisting of $232,000 of principal, $141,000 of default penalties and $22,752 of accrued interest. Additionally, If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any new debt. Additionally, if the note is not repaid by the maturity date the principal balance increases by $15,000. In connection with the convertible debenture, the Company issued 313,263 of their common shares as a commitment fee to the noteholder, with a fair value of approximately $169,000, based on the market value of the common stock on the date of issuance of $0.54, included in the debt discount. Upon the acquisition of the note, Labrys returned the commitment fee shares to the Company.
The note is convertible into shares of the Company’s common stock at a variable conversion rate that is equal to the lesser of the lowest trading price for the last 20 days prior to the issuance of the note or 45% of the lowest market price over the 20 days prior to conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. There are additional 12% adjustments to the conversion price for events set forth in the agreement, including if the conversion price is less than $0.01, if the Company is not DTC eligible, the Company is no longer a reporting company, or the note cannot be converted into free trading shares on or after six months from issue date. The holder has the option to increase the principal by $5,000 per each default occurrence instead of applying further discounts to the conversion price. However, under no circumstances shall the principal amount exceed an additional $25,000 nor can the conversion price be less than 30% multiplied by the market price due to the cumulative effect. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $608,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.54 at issuance date; a risk-free interest rate of 2.46% and expected volatility of the Company’s common stock, of 202.78%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $498,000 was immediately expensed as financing costs.
On September 5, 2019, $50,000 of the Labrys 2019 note was converted into 1,000,100 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $77,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $12,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.13; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock of 210.74%, and the various estimated reset exercise prices weighted by probability.
Crossover Capital Fund I May 17, 2019 note
On May 17, 2019, the Company executed a 10% fixed convertible promissory note payable to Crossover Capital Fund I, LLC in the principal amount of $82,500, and is due on May 17, 2020. The convertible note had an OID of $7,500, for a purchase price of $75,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the fixed price of $1.00 or (ii) 61% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable. Additionally, if the Company fails to comply with the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings, even if the Company subsequently cures such delinquency), the discount shall be increased an additional 15%. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $132,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.45 at issuance date; a risk-free interest rate of 2.35% and expected volatility of the Company’s common stock, of 177.33%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $49,500 was immediately expensed as financing costs.
Auctus Fund May 15, 2019 note
On May 15, 2019, the Company entered into a convertible note with Auctus Fund for the principal amount of $200,000, convertible into shares of common stock of the Company, which matures on February 15, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. On May 20, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $100,000. As a result the outstanding balance of the note as of June 30, 2019, was $300,000. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $318,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.42 at issuance date; a risk-free interest rate of 2.30% and expected volatility of the Company’s common stock, of 191.41%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $118,000 was immediately expensed as financing costs.
Illiad Research May 29, 2019 note
On May 29, 2019, the Company executed a 10% fixed convertible promissory note payable to Illiad Research for the principal amount of $115,000, which matures on May 29, 2020. The convertible note had an OID of $5,000, plus $5,000 was deducted from the purchase price for legal and due diligence fees for a purchase price of $100,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 22% and the principal balance increases by 15%. The note is convertible into shares of Common Stock at a conversion price equal to 60% multiplied by the lowest closing trade price during the 20 trading days immediately preceding the applicable conversion. Per the agreement, the Company is required at all times to have 1,800,000 common shares reserved. The Company may prepay the note at 125% of the principal and accrued interest balance. The conversion feature meets the definition of a derivative and requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $168,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.47 at issuance date; a risk-free interest rate of 2.30% and expected volatility of the Company’s common stock, of 177.33%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $53,000 was immediately expensed as financing costs.
GS Capital June 3, 2019 note
On June 3, 2019, the Company entered into a convertible note with GS Capital for the principal amount of $192,500, convertible into shares of common stock of the Company, which matures on June 3, 2020. The convertible note had an OID of $17,500, for a purchase price of $175,000. The note bears interest at 10%, which increases to 24% upon an event of default. In an event of default as set forth in the note, including if the Company does not pay the note at maturity, or the common stock of the Company is delisted or loses its bid price, the default sum becomes 110% to 150% of the principal outstanding and accrued interest. The note is convertible beginning on the six month anniversary of the note, at the lesser of: (i) $1.00; or (ii) 60% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note. The discount shall increase to 50% if the Company experiences a DTC “chill”. If the Company is not current in their filings with the SEC after the six month anniversary of the note, the holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
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JSJ Investments June 28, 2019 note
On June 28, 2019, the Company entered into a convertible note with JSJ Investments, Inc. which was funded on July 2, 2019, for the principal amount of $118,000, convertible into shares of common stock of the Company, which matures on July 11, 2019. The convertible note had an OID of $5,000, for a purchase price of $113,000. The note bears interest at 12%, which increases to 18% upon an event of default. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable conversion rate at a 40% discount to the lowest closing price during the previous twenty days to the conversion date. The conversion rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt of a conversion request. In an event of default, as defined in the note, the “default amount” shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by (B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded at any time between the issuance date and the date of the event of default. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible, either 180 days after issuance or upon an event of default.
EMA July 8, 2019 note
On July 8, 2019, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with EMA Financial LLC, which matures on April 8, 2020. The holder may extend the maturity date up to one year, by written notice at least five days before the original maturity date. The convertible note had an OID of $9,000, for a purchase price of $141,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%, and the default sum due becomes 200% of the principal outstanding and accrued interest. Additionally, if the market price of the Company’s common stock falls below $0.01, the principal shall increase by $25,000. The note is convertible at a variable conversion rate of 60% of the lowest closing price during 20 days on which at least 100 shares of common stock were traded prior to and including the conversion date, to be adjusted if in default. The discount increases by 15% discount if there is a DTC “chill” in effect, the closing price falls below $0.095, the Company ceases to be a reporting company pursuant to the 1934 Act, or the note cannot be converted into free trading shares after 181 days from the issuance date. The discount also increases by 10% if the Company’s common shares are not deliverable via DWAC system. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $239,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.22 at issuance date; a risk-free interest rate of 1.99% and expected volatility of the Company’s common stock, of 193.64%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $89,000 was immediately expensed as financing costs.
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Auctus Fund July 31, 2019 note
On July 31, 2019, the Company entered into a convertible note with Auctus Fund, LLC for the principal amount of $200,000, convertible into shares of common stock of the Company, which matures on April 30, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $319,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.20 at issuance date; a risk-free interest rate of 2.0% and expected volatility of the Company’s common stock, of 193.64%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $119,000 was immediately expensed as financing costs.
Black Ice August 23, 2019 note
On August 23, 2019, the Company entered into a convertible note with Black Ice Advisors, LLC for the principal amount of $110,000, convertible into shares of common stock of the Company, which matures on August 23, 2020. The note has an OID of $10,000, for a purchase price of $100,000. The note bears interest at 10%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price which shall equal the lesser of: (i) $1.00; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
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LG Capital August 27, 2019 note
On August 27, 2019, the Company entered into a convertible note with LG Capital Funding, LLC for the principal amount of $82,500, convertible into shares of common stock of the Company, which matures on August 27, 2020. The note has an OID of $7,500, for a purchase price of $75,000. The note bears interest at 10%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price which shall equal the lesser of: (i) $1.00; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
Armada September 3, 2019 note
On September 3, 2019, the Company entered into a convertible note with Armada Investment Fund for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $122,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.72% and expected volatility of the Company’s common stock, of 204.06%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $39,500 was immediately expensed as financing costs.
BHP September 3, 2019 note
On September 3, 2019, the Company entered into a convertible note with BHP Capital NY, Inc. for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $122,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.72% and expected volatility of the Company’s common stock, of 204.06%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $39,500 was immediately expensed as financing costs.
Jefferson Street September 3, 2019 note
On September 3, 2019, the Company entered into a convertible note with Jefferson Street Capital, LLC for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $122,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.72% and expected volatility of the Company’s common stock, of 204.06%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $39,500 was immediately expensed as financing costs.
Granite Global September 13, 2019 note
On September 13, 2019, the Company entered into a convertible note with Granite Global Value Investments (“Grantite Global”) for the principal amount of $395,000, convertible into shares of common stock of the Company, which matures on April 21, 2020. The note has an OID of $39,500 for a purchase price of $335,500, which is to be paid in two tranches of $167,750 each. The first tranche was funded on September 19, 2019, and the second tranche is to be funded nine months after the funding of the first tranche. The note bears interest at 12%, which increases to 24% upon an event of default. Additionally, in the event of a default, for numerous events as set forth in the agreement, the outstanding principal shall increase by 50%. The note is convertible at the lesser of: (i) $0.40; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The discount will be increased by 12% for various occurrences as set forth in the agreement, including if the Company is not DTC eligible or experiences a DTC “chill”, if the conversion price falls below $0.01, or if the Company is delisted or delinquent in their filings with the SEC. Or the holder has the option to increase the principal by $5,000 for each occurrence in place of increasing the discount to the conversion price. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at 140% of the principal and accrued interest balance. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
In connection with the Granit Global note, the Company granted a number of warrants equal to $395,000 divided by the market price which is defined as the conversion factor (60%) of the lowest closing bid price over the last 20 days to date of issuance at inception, and to exercise date when the warrants are exercised, exercisable at $0.12, with a five year term. The exercise price is adjustable upon any future dilutive issuance. The Company estimated the fair value of the warrants, which were calculated as 5,486,111 warrants at issuance, using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.14 at issuance date; a risk-free interest rate of 1.66% and expected volatility of the Company’s common stock, of 175.0%, resulting in a fair value of $734,000.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $376,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.16 at issuance date; a risk-free interest rate of 1.92% and expected volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability. This, plus the fair value of the warrants, resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $922,500 was immediately expensed as financing costs.
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Auctus Fund September 16, 2019 note
On September 16, 2019, the Company entered into a convertible note with Auctus Fund, LLC for the principal amount of $200,000, convertible into shares of common stock of the Company, which matures on September 16, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation and will be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $333,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.12 at issuance date; a risk-free interest rate of 1.86% and expected volatility of the Company’s common stock, of 197.31%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $200,000 was immediately expensed as financing costs.
Adar Alef September 24, 2019 note
On September 24, 2019, the Company entered into a convertible note with Adar Alef, LLC for the principal amount of $149,453, convertible into shares of common stock of the Company, which matures on September 24, 2020. The note has an OID of $13,587, for a purchase price of $135,866. The note bears interest at 8%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price equal to 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 130% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
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Armada October 11, 2018 note
On October 11, 2018, the Company entered into a convertible note with Armada Investment Fund LLC (“Armada”) for the principal amount of $55,000, convertible into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a result the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser of: (i) $1.75; and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note, and (iii) 65% multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC eligible, or if the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In connection with the Armada note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000. The warrants were exercised on April 24, 2019, in a cashless exercise, resulting in the issuance of 264,000 shares of the Company’s common stock.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $52,000 was immediately expensed as financing costs.
The Armada October 2018 note was fully converted on several dates in the second quarter of 2019, at which time the derivative fair value of $69,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $2,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.65; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 143.85%, and the various estimated reset exercise prices weighted by probability.
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BHP October 11, 2018 note
On October 11, 2018, the Company entered into a convertible note with BHP Capital NY Inc. (“BHP”) for the principal amount of $55,000, convertible into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a result the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser of: (i) $1.75; and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note, and (iii) 65% multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC eligible, or if the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In connection with the BHP note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $52,000 was immediately expensed as financing costs.
The BHP October 2018 note was fully converted on several dates in the second quarter of 2019, at which time the derivative fair value of $69,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $2,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.65; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 143.85%, and the various estimated reset exercise prices weighted by probability.
Jefferson October 11, 2018 note
On October 11, 2018, the Company entered into a convertible note with Jefferson Street Capital, LLC (“Jefferson”) for the principal amount of $55,000, convertible into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a result the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser of: (i) $1.75; and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note, and (iii) 65% multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC eligible, or if the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In connection with the Jefferson note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000.
The Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $52,000 was immediately expensed as financing costs.
The Jefferson October 2018 note was fully converted on several dates in the second quarter of 2019, at which time the derivative fair value of $69,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $2,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.65; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 143.85%, and the various estimated reset exercise prices weighted by probability.
Power Up October 16, 2018 note
On October 16, 2018, the Company entered into a 12% convertible note with Power Up Lending for the principal amount of $43,000, convertible into shares of common stock of the Company, which matures on July 30, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. The note was in default due to the Company being delinquent in their filings under the Exchange Act, and therefore the principal was increased 50%, to $64,500, with the increase being recognized as a penalty expense in the accompanying Statement of Operations. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 65% multiplied by the market price (as defined in the note). The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and will at that time require bifurcation and to be accounted for as a derivative liability. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note.
The Power Up October 2018 note was fully converted on April 24, 2019, at which time the derivative fair value of $55,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $25,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.65; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 222.18%, and the various estimated reset exercise prices weighted by probability.
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JSJ Investments October 29, 2018 note
On October 29, 2018, the Company entered into a 12% convertible note for the principal amount of $118,000 with JSJ Investments, Inc, which matures on October 29, 2019, and has a $5,000 OID. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable conversion rate at 60% of market price (as defined in the note). The conversion rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt of a conversion request. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible, either 180 days after issuance or upon an event of default. The derivative liability was recognized on April 27, 2019, in the initial amount of $177,000 based on the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.62; a risk-free interest rate of 2.46% and expected volatility of the Company’s common stock, of 200.74%, and the various estimated reset exercise prices weighted by probability.
The JSJ October 2018 note was fully converted on several dates in the second quarter of 2019, at which time the derivative fair value of approximately $114,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of approximately $63,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the dates converted; a risk-free interest rate ranging from 2.29% to 2.45% and expected volatility of the Company’s common stock ranging from 143.85% to 172.14%, and the various estimated reset exercise prices weighted by probability.
Auctus October 31, 2018 note
On October 31, 2018, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with Auctus Funds, which matures on July 31, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $75,000. As a result, the outstanding balance of the note as of December 31, 2018, was $225,000. The note is convertible at a variable conversion rate lessor of (i) lowest closing price during the previous 25 trading day period, prior to the date of note and (ii) the variable price, which is 60% by market price (lowest closing price for 25 days prior to conversion). The discount increases by 15% discount if there is a DTC “chill” in effect., and an additional 10% if the Company is not DWAC eligible. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. The conversion price is adjusted if any 3rd party has the right to convert monies at a discount to market greater than the conversion price in effect at that time then the holder, may utilize such greater discount percentage. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain the reserve shares or fails to replenish then within 3 days of request, the principal balance increases by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In connection with the Auctus note, the Company issued 375,000 warrants, exercisable at $0.20, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.24 at issuance date; a risk-free interest rate of 2.91% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $83,000. On August 23, 2019, 1,765,843 shares of the Company’s common stock was issued upon the cashless exercise of the 375,000 warrants.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $214,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.24% and expected volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $147,000 was immediately expensed as financing costs.
On several dates in June 2019, $94,638 of the Auctus October 2018 note was converted, at which time the derivative fair value of approximately $72,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $46,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.23; a risk-free interest rate of 2.27% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise prices weighted by probability.
On July 26, 2019, $55,362 of the Auctus October 2018 note was converted into 1,193,058 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $63,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $105,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.19; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise prices weighted by probability.
EMA October 31, 2018 note
On October 31, 2018, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with EMA Financial LLC, which matures on July 31, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 200% of the principal outstanding and accrued interest. Additionally, if the market price of the Company’s common stock falls below $0.01, the principal shall increase by $25,000. As of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $150,000. As a result, the outstanding balance of the note as of December 31, 2018, was $300,000. The note is convertible at a variable conversion rate lessor of (i) the closing price on the day preceding the issue date and (ii) 60% of either the lowest closing price during 25 days prior to and including the conversion date, or the closing bid price, whichever is lower. The discount increases by 15% discount if there is a DTC “chill” in effect or closing price falls below $0.05875. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In connection with the note, the Company issued 312,500 warrants, exercisable at $0.24, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.24 at issuance date; a risk-free interest rate of 2.91% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $68,000.
The Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $214,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.24% and expected volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $132,000 was immediately expensed as financing costs.
On several dates in June 2019, $140,206 of the EMA October 2018 note was converted, at which time the derivative fair value of approximately $122,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $29,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.24; a risk-free interest rate of 2.33% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise prices weighted by probability.
On July 26, 2019, $28,300 of principal and $13,506 of accrued interest of the EMA October 2018 note was converted into 503,710 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $36,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, with no change in the fair value, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.21; a risk-free interest rate of 2.33% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise prices weighted by probability.
Power Up December 3, 2018 note
On December 3, 2018, the Company entered into a 12% convertible note with Power Up Lending, for the principal amount of $53,000, convertible into shares of common stock of the Company, which matures on September 15, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 65% multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and will at that time require bifurcation and to be accounted for as a derivative liability. The derivative liability was recognized on June 1, 2019, in the initial amount of $87,000 based on the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.43; a risk-free interest rate of 2.35% and expected volatility of the Company’s common stock, of 143.85%, and the various estimated reset exercise prices weighted by probability.
The Power Up December 2018 note was fully converted on several dates in June 2019, at which time the derivative fair value of approximately $61,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of approximately $26,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.23; a risk-free interest rate of 2.33% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise prices weighted by probability.
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Crown Bridge June 13, 2018 note
On June 13, 2018, the Company executed a 10% convertible promissory note payable to Crown Bridge Partners in the principal amount of $225,000, with an OID of $22,500. The first tranche of the note, in the principal amount of $75,000, with an OID of $7,500 for net cash receipt of $67,500, was paid at closing. Crown Bridge Partners may pay, in its sole discretion, such additional amounts of the consideration and at such dates as the holder may choose in its sole discretion. On August 21, 2018, a second tranche, for a 10% convertible promissory note in the amount of $25,000 was executed. On January 10, 2019, a third tranche, for a 10% convertible promissory note in the amount of $50,000 was executed. On February 15, 2019, a fourth tranche, for a 10% convertible promissory note in the amount of $35,000 was executed. Each tranche shall be due twelve months after payment. In an event of default as set forth in the note, the interest rate increases to a default amount of 15%, and the default sum due becomes 150% of the principal outstanding and accrued interest. As of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance on the first tranche was increased by $37,500. As a result, the outstanding balance of the first tranche as of December 31, 2018, was $112,500. The note principal balance on the second tranche was increased by $12,500. As a result, the outstanding balance of the second tranche as of December 31, 2018, was $37,500. The note is convertible at a variable conversion rate of 65% of the lowest closing price during 20 days prior to the conversion date. If at any time while the note is outstanding, the conversion price is equal to or lower than $0.50, then an additional fifteen percent (15%) discount shall be factored into the conversion price. The discount will also be increased by 10% if the Company’s common shares are not DTC deliverable. Additionally, if the Company fails to comply with the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings, even if the Company subsequently cures such delinquency), the discount shall be increased an additional 15%. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. The conversion feature met the definition of a derivative and required bifurcation and to be accounted for as a derivative liability.
The Company estimated the fair value of the conversion feature derivative embedded in the first tranche at issuance at $100,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.20; a risk-free interest rate of 2.69% and expected volatility of the Company’s common stock, of 158.40%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $25,000 was immediately expensed as financing costs.
The Company estimated the fair value of the conversion feature derivative embedded in the second tranche at issuance at $36,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.46; a risk-free interest rate of 2.45% and expected volatility of the Company’s common stock, of 167.29%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $11,000 was immediately expensed as financing costs.
The Company estimated the fair value of the conversion feature derivative embedded in the third tranche at issuance at $50,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.46; a risk-free interest rate of 2.45% and expected volatility of the Company’s common stock, of 167.29%, and the various estimated reset exercise prices weighted by probability.
The Company estimated the fair value of the conversion feature derivative embedded in the fourth tranche at issuance at $39,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.46; a risk-free interest rate of 2.45% and expected volatility of the Company’s common stock, of 167.29%, and the various estimated reset exercise prices weighted by probability. This, and the $15,000 fair value of the warrants issued, resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $19,000 was immediately expensed as financing costs.
In connection with the fourth tranche, the Company issued 66,666 warrants, exercisable at $0.75, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.26 at issuance date; a risk-free interest rate of 2.23% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $15,000.
At four various dates during January 2019, the holder fully converted the $112,500 principal plus $5,370 of accrued interest and $2,000 of fees, of the first tranche, into 2,148,368 shares of common stock of the Company, at a conversion price of $0.06. At conversion the derivative fair value of $173,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, with an increase in fair value of $24,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest rate of 2.47% and expected volatility of the Company’s common stock, of 158.11%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
At three various dates during January and February 2019, the holder converted $31,008 of the principal of the second tranche, leaving approximately $6,500 of principal outstanding at March 31, 2019, into 548,001 shares of common stock of the Company, at a conversion price of $0.06. At conversion the derivative fair value of $88,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification with an increase in fair value of $55,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest rate of 2.51% and expected volatility of the Company’s common stock, of 189.34%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed. On July 7, 2019, the remaining approximately $6,500 of principal and $2000 of interest was converted into 261,348 shares of common stock of the Company, at a conversion price of $0.04.
At two dates during the third quarter of 2019, the holder converted approximately $43,000 of principal, of the third tranche, into 1,150,000 shares of common stock of the Company, at a conversion prices of $0.03 to $0.04. At conversion the derivative fair value of $49,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, with an increase in fair value of $17,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 172.14%, and the various estimated reset exercise prices weighted by probability. Upon conversion the related unamortized debt discount was also immediately expensed.
Crossover Capital Fund I July 27, 2018 note
On July 27, 2018, the Company executed an 8% fixed back-end convertible promissory note payable to Crossover Capital Fund I, LLC in the principal amount of $115,000, and is due on March 27, 2019. The note is convertible into shares of Common Stock at a conversion price of $1.30 per share if converted within 5 months, or thereafter the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and will at that time require bifurcation and to be accounted for as a derivative liability.
On January 24, 2019 the Company recognized the derivative liability. The Company estimated the fair value of the conversion feature derivative embedded in the debenture at $119,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.41; a risk-free interest rate of 2.42% and expected volatility of the Company’s common stock, of 317.80%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $4,000 was immediately expensed as financing costs.
On January 24, 2019, the holder converted approximately $114,000 principal plus $2,262 of accrued interest into 1,460,000 shares of common stock of the Company, at a conversion price of $0.08, leaving a principal balance of approximately $1,000 outstanding as of March 31, 2019. At conversion the derivative fair value of $109,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification with a decrease in fair value of $10,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest rate of 2.50% and expected volatility of the Company’s common stock, of 189.34%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
GS Capital July 19, 2018 note
On July 19, 2018, the Company entered into two 10% convertible redeemable notes to GS Capital in the aggregate principal amount of $250,000, convertible into shares of common stock of the Company, with maturity dates of July 19, 2019. Each note was in the face amount of $125,000, with an original issue discount of $5,000, resulting in a purchase price for each note of $120,000. The first of the two notes was paid for by the buyer in cash upon closing, with the second note initially paid for by the issuance of an offsetting $120,000 secured promissory note issued to the Company by the buyer (“Buyer Note”). The notes are convertible beginning six months after issuance, at the lower of (i) $0.60 or (ii) 65% of the lowest of trading price for last 20 days, with the discount increased to 45% in the event of a DTC chill. The second note is not convertible until the buyer has settled the Buyer Note in cash payment, which must be funded by March 20, 2019. The Buyer Note was funded on January 17, 2019, for gross proceeds of $114,000. The Buyer Note is included in Notes Receivable in the accompanying financial statements as of December 31, 2018. During the first six months, the convertible redeemable notes are in effect, the Company may redeem the note at amounts ranging from 113% to 137% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from 60 days to 180 days from the date of issuance of each debenture. The conversion feature does not meet the definition of a derivative during the first six months, but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability
On January 20, 2019 the Company recognized the derivative liability related to the two notes. The Company estimated the fair value of the conversion feature derivative embedded in the debentures at $237,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.64; a risk-free interest rate of 2.51% and expected volatility of the Company’s common stock, of 189.34%, and the various estimated reset exercise prices weighted by probability.
On two dates during January and February 2019, the holder fully converted the $125,000 principal plus $6,331 of accrued interest, into 1,572,550 shares of common stock of the Company, at conversion prices ranging from $.08 to $0.12. At conversion the derivative fair value of $84,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification with an decrease in fair value of $30,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest rate of 2.51% and expected volatility of the Company’s common stock, of 189.34%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
On February 6, 2019, the holder fully converted the $125,000 principal of the back-end note, into 709,837shares of common stock of the Company at a conversion price of $0.18. At conversion the derivative fair value of $88,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification with a decrease in fair value of $35,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.65; a risk-free interest rate of 2.50% and expected volatility of the Company’s common stock, of 211.48%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
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Power Up July 30, 2018 note
On July 30, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount of $53,000, and is due on May 15, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $26,500. As a result, the outstanding balance of the note as of December 31, 2018, was $79,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion price of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall equal the lesser of: (i) $1.75; and (ii) 65% multiplied by the market price, as defined in the agreement. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days, but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
On January 30, 2019 the Company recognized the derivative liability. The Company estimated the fair value of the conversion feature derivative embedded in the debenture at $82,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.67; a risk-free interest rate of 2.42% and expected volatility of the Company’s common stock, of 317.80%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $2,400 was immediately expensed as financing costs.
On two dates during February 2019, the holder fully converted the $79,500 principal plus $3,180 of accrued interest, into 361,869 shares of common stock of the Company, at conversion prices ranging from $.21 to $0.25. At conversion the derivative fair value of $68,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification with a decrease in fair value of $14,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest rate of 2.40% and expected volatility of the Company’s common stock, of 222.18%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
Power Up September 11, 2018 note
On September 11, 2018, the Company executed an 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount of $53,000, due on June 30, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. The note is convertible for 180 days from inception into shares of Common Stock at a conversion price of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall equal the lesser of: (i) $1.75; and (ii) 65% multiplied by the market price, as defined in the agreement. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days, but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
On March 11, 2019, the Company recognized the derivative liability. The Company estimated the fair value of the conversion feature derivative embedded in the debenture at $68,000, based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.50; a risk-free interest rate of 2.46% and expected volatility of the Company’s common stock, of 222.18%, and the various estimated reset exercise prices weighted by probability
On two dates during March 2019, the holder fully converted the $79,500 principal into 295,327 shares of common stock of the Company, at conversion prices ranging from $.27 to $0.29. At conversion the derivative fair value of $61,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification with an increase in fair value of $68,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of on the date of conversion; a risk-free interest rate of 2.45% and expected volatility of the Company’s common stock, of 222.18%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
Tangiers Global November 9, 2017 note
On November 9, 2017, the Company executed a 10% fixed convertible promissory note payable to Tangiers Global LLC in the principal amount of $330,000. The note, which is due seven and a half months from the date of effective date of payment, was funded by the investor in the initial sum of $150,000, net of a $15,000 OID on November 15, 2017 and $150,000, net of a $15,000 OID on December 19, 2017. The note is convertible into shares of Common Stock at a conversion price of $1.30 per share if converted within 8 months, or thereafter the conversion price shall be equal to the lower of (i) the fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. On four occasions during July through December 2018 the holder converted $320,000 of the note into 1,544,834 shares of the Company’s common shares at conversion prices ranging from $0.50 to $0.08. On January 4, 2019 the holder converted the remaining $10,000 principal plus $22,727 of accrued interest and penalties into 416,114 shares of commons stock of the Company, at a conversion price of $0.08.
The derivative liability arising from all of the above discussed debentures was revalued at September 30, 2019, resulting in an increase of the fair value of the remaining derivative liability of approximately $187,000 and a decrease of approximately $343,000 for the three and nine months ended September 30, 2019. During the nine months ended June 30, 2019, there was a reclass of approximately $2,821,000 of the derivative fair value to equity upon the conversions of approximately $2,332,000 of principal, and a decrease in the fair value of $580,000 immediately prior to conversion. The key valuation assumptions used as of September 30, 2017:2019 consist, in part, of the price of the Company’s common stock of $0.2512; a risk-free interest rate ranging from 1.75% to 1.88% and expected volatility of the Company’s common stock ranging from 193.89% to 210.34%, and the various estimated reset exercise prices weighted by probability. There was not a derivative liability as of September 30, 2018.
DuringAs the conversion features on specified notes have variable conversion prices with no stated floor, the warrants issued with the units purchased as well as certain convertible notes, were required to be classified out of equity as liabilities in October 2018, when the first conversion feature triggered liability classification of the warrants outstanding. The warrant liability was revalued at September 30, 2019, resulting in an increase of the fair value of the warrant liability of $589,000 and $979,000 for the three and nine months ended September 30, 2017, the Company authorized the issuance of 181,818 shares of common stock for cash at $1.10 per share for a total to be earned of $200,000. As of September 30, 2017 none of these shares have been issued and outstanding even though the Company received $50,000 with respect to these shares. As a result, the Company recorded $50,000 in stock payable2019. The key valuation assumptions used as of September 30, 2017.2019 consist, in part, of the price of the Company’s common stock of $0.12; a risk-free interest rate ranging from 1.55% to 1.88% and expected volatility of the Company’s common stock ranging from 172.2% to 210.3%.
DuringFor the three and nine months ended September 30, 2017,2019 and 2018, the Company authorizedhas recognized approximately $84,000 and $245,000 and $17,000 and $36,000, respectively, in interest expense related to the issuancenotes as described above, and has accrued interest on the notes of 80,000 shares of common stock valued at $1.60 per share to Ace Legends Pte Ltd. for services provided. As of September 30, 2017 none of these shares have been issuedapproximately $238,000 and outstanding. As a result, the Company recorded $128,000 in stock payable$84,000 as of September 30, 2017.2019 and December 31, 2018, respectively.
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Note 7 - Related Party Transactions
Debt Conversion into SharesOn August 31, 2018, the Company acquired 100% of the outstanding shares of its licensor, PT. Kinerja, which had previously issued the Company, as licensee, the exclusive license of the Company’s IP technology. (Note 1) At the date of the closing of the acquisition, PT. Kinerja had 18 million shares issued and outstanding, of which 75% or 13.5 million the shares were owned by the CEO of the Company. The consideration for the acquisition was $1,200,000, to be paid by a promissory note which was issued by the Company to PT Kinerja shareholders, all related parties. The promissory note (the “Note”) bears interest at the rate of 6% per annum and is due twenty-four months from the date of the agreement. As part of the acquisition, the Company terminated its Service agreement dated February 20, 2016, with PT Kinerja. In accordance withASC 805-50-30-5,Transactions Between Entities Under Common StockControl, as
the Company’s CEO and sole director was in control of both the Company and PT. Kinerja, the acquisition was accounted for under common control accounting, and therefore the assets acquired and liabilities assumed were recognized at their historical cost basis. During the nine months ended September 30, 2019, approximately $389,000 was paid on the promissory note, resulting in a balance outstanding of approximately $798,000 as of September 30, 2019.
On May 9, 2017, the Company agreedentered into a $50,000 note payable with their CEO and controlling stockholder. The balance is due on demand and accrues interest at 8% per annum.
Payable to convert $100,000related party consists of the note payable with the Company’s CEO and expenses paid on behalf of the CEO. In addition, during the year ended December 31, 2018, upon the closing of the acquisition the Company assumed the liability of $119,340 owed by the Company’s CEO on the building owned/used by PT. Kinerja. Additionally, the Company assumed an officer loan in debt into 200,000the amount of $672,810, which is non-interest bearing and due on demand. The balance as of September 30, 2019 reflects payments made on the payable, as well as changes in foreign currency.
Note 8 - Stockholders’ Equity
On July 26, 2019, the Board of Directors of the Company authorized an increase in the authorized common shares of common stock and 200,000 warrants. The debt was non-convertible, and the borrowings took place on May 7, 2017, but were subsequently fully converted on May 23, 2017. In addition, the Company incurred a loss of $442,697 in connection with the debt conversion, which was recorded as additional paid-in capital.to 950,000,000.
CommonSeries A Convertible Preferred Stock and Warrants Issued for Cash
During the nine months ended September 30, 2017,On January 2, 2018, the Company received $902,000 through a placementissued 400,000 Series A Convertible Preferred Stock to an institutional investor for an aggregate purchase price of 1,359,000$500,000. The total net proceeds to the Registrant for issuance and sale of the Series A Convertible Preferred Stock (the “Preferred Stock”) was $445,000 after payment of due diligence and legal fees related to this transaction. The Series A Convertible Preferred Stock was convertible into 400,000 shares of the Company’s common stock units to investors for an offeringat a conversion price of $0.50 and $1.00$1.25 per unit. Each unit consisted of one share of common stock and one warrantshare. In addition, on January 2, 2018, the Company issued to the institutional investor Class N Warrants exercisable to purchase common stock. The 1,214,000 warrants are exercisablean additional 400,000 shares on a cashless basis, at $2.00 and $1.00 and expire one yearan exercise price of $1.25 per Share, during a period of three (3) years from the date of issuance. The warrants were valued using the Black-Scholes pricing model to estimate the relative fair value of $781,714. The Black-Sholes-Merton pricing model assumptions used are as follows: expected dividend yield of 0%; risk-free interest rate of 1.36%; expected volatility between 179% and 181%, and warrant exercise period based upon the stated terms. The warrants were classified within stockholders’ equity.
Stock-Based Compensation
During the nine months ended September 30, 2017, the Company issued 1,475,000 fully vested shares of the Company common stock and 1,900,000 warrants to consultants as payment for services. As the equity instruments issued are fully vested and non-forfeitable, the fair value of the grants was recognized as an increase additional paid-in capital at the measurement date. The shares were valued at the closing price as of the date of the underlying agreements (ranging from $0.65 to $2.93).
Agreement. The warrants were valued using the Black-Scholes pricing model to estimate the fair value of $1,051,973$300,772. The key valuation assumptions used consist, in part, of the price of the Company’s common stock on the date of issuance of $2.19; a risk-free interest rate of 1.92% and resultedexpected volatility of the Company’s common stock of 185.51%.
On July 11, 2018, the Company issued to the institutional investor a total of 416,667 shares of common stock, pursuant to a notice of conversion dated July 9, 2018, in connection with the conversion of 200,000 shares of the Series A Convertible Preferred Stock, at an adjusted conversion price of $0.60, which adjustment was subject to an agreement between the Company and the institutional investor. As a result of the modification to the conversion price, the Company recognized a loss on conversion in the amount of $190,255. On January 17, 2019, as a result of an agreement between the Company and the institutional investor to adjust the conversion price to $0.20, the Company issued the holder of the Series A Convertible Preferred Stock 833,333 shares of their common stock as a retroactive modification of the conversion price on the previously conversions. As a result of the additional shares issued, the Company recognized a loss on conversion in the amount of $708,333
On February 22, 2019, the holder of the Series A Convertible Preferred Shares converted an additional 64,000 Series A preferred shares into a total of 400,000 shares of common stock, at the adjusted conversion price of $0.20. As a result of the modification to the conversion price, the Company recognized a loss on conversion in the amount of $198,240.
On April 2, 2019, the holder converted the remaining 136,000 Series A Convertible Preferred Shares into a total of 850,000 shares of common stock, at an adjusted conversion price of $0.20, which adjustment was subject to an agreement between the Company and the institutional investor. As a result of the modification to the conversion price, the Company recognized a loss on conversion in the amount of $428,400.
Series D Preferred Stock
On December 11, 2018, the Company’s board of directors authorized the designation of a Convertible Preferred Stock consisting of 200,000 shares with a par value of $0.0001 per share (the “Series D Preferred Stock”). The Series D Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the holders decide to convert. The Series D Preferred Stock is convertible into a number of shares of the Company’s common stock equal to a total of 10% percent of the Company’s outstanding shares of common stock as exists on the date of issuance, on a fully-diluted basis, which includes all shares of common stock underlying convertible debt or other securities of the Company convertible into shares of the Company’s common stock, including shares underlying the shares of Series D Preferred Stock (collectively, the “Convertible Securities”). The Series D Preferred Stock includes anti-dilution protection rights, whereby for a period of 3 years from the date of issuance of the Series D Preferred Stock, and provided that the holder of Series D Preferred Stock shall hold at least 15,000 shares of Series D Preferred Stock, the holder shall be entitled to convert of the shares of Series D Preferred Stock into a number of shares of the Company’s fully-diluted common stock at the date of conversion.
On January 15, 2019, the 200,000 Series D Preferred Shares were issued to the shareholders of FRS Lending, Inc., a Delaware corporation (“FRS”) in consideration for the acquisition by the Company of 100% of the capital stock of FRS, which shall operate on behalf of and provide the Company with services related to the Company’s lending and micro-lending activities and related lending services in the U.S., Indonesia and internationally, which is a newly developing division that the Corporation is planning to devote resources to grow its operations. The fair value of the consideration was calculated at $2,372,945, based on 10% of the fully diluted common shares of the Company as of the date of issuance. FRS did not have any significant tangible assets or liabilities as of the date of acquisition. The agreement also includes an employment agreement with a three-year term. The consideration issued in the acquisition has been recognized as consideration related to the employment agreement and will be amortized over the three-year term of the employment agreement. The current recognitionportion is included in additional consulting services.prepaid expense and the long term portion in other assets, on the accompanying condensed consolidated balance sheet. The Black-Sholesamortization expense for the three and nine months ended September 30, 2019 was $197,745 and $540,490, respectively.
The Series D Preferred Stock was evaluated in accordance with ASC 480, to determine if liability classification was warranted. As there are no redemption features, and the variable shares to be issued upon conversion are not based on a fixed monetary amount known at inception, nor is the variation based on something other than the fair value of the Company’s equity shares, the preferred shares are classified in equity. The embedded conversion feature was analyzed to determine if it was required to be bifurcated from the preferred shares and accounted for separately, but as the conversion feature is clearly and closely related to preferred shares, which are an equity host instrument, the conversion feature is not to be bifurcated.
Series E Preferred Stock
On December 11, 2018, the Company’s board of directors authorized the designation of a Convertible Preferred Stock consisting of 200,000 shares with a par value of $0.0001 per share (the “Series D Preferred Stock”). The Series D Preferred Stock has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely unless the holders decide to convert. The Series D Preferred Stock is convertible into a number of shares of the Company’s common stock equal to a total of 15% percent of the Company’s outstanding shares of common stock as exists on the date of issuance, on a fully-diluted basis, which includes all shares of common stock underlying convertible debt or other securities of the Company convertible into shares of the Company’s common stock, including shares underlying the shares of Series D Preferred Stock (collectively, the “Convertible Securities”). The Series D Preferred Stock includes anti-dilution protection rights, whereby for a period of 3 years from the date of issuance of the Series D Preferred Stock, and provided that the holder of Series D Preferred Stock shall hold at least 15,000 shares of Series D Preferred Stock, the holder shall be entitled to convert of the shares of Series D Preferred Stock into a number of shares of the Company’s fully-diluted common stock at the date of conversion.
On January 15, 2019, the 200,000 Series E Preferred Shares were issued to Company’s CEO and Chairman, Edwin Ng as compensation for services related to the negotiation with PT. Investa Wahana Group for the commitment agreement for the subscription of preferred stock discussed above. The fair value of the compensation was calculated at $3,559,417, based on 15% of the fully diluted common shares of the Company as of the date of issuance.
The Series E Preferred Stock was evaluated in accordance with ASC 480, to determine if liability classification was warranted. As there are no redemption features, and the variable shares to be issued upon conversion are not based on a fixed monetary amount known at inception, nor is the variation based on something other than the fair value of the Company’s equity shares, the preferred shares are classified in equity. The embedded conversion feature was analyzed to determine if it was required to be bifurcated from the preferred shares and accounted for separately, but as the conversion feature is clearly and closely related to preferred shares, which are an equity host instrument, the conversion feature is not to be bifurcated.
Issuance of Shares of Common Stock and Warrants for cash
On March 19, 2019, the Company received $70,000 through a placement of 140,000 common stock units to an investor for an offering price of $0.50 per unit. Each unit consists of one share of common stock and one warrant to purchase common stock. The 140,000 warrants are exercisable at $1.00 and expire two years from the date of issuance. The warrants were valued at $45,000, using the Black-Scholes pricing model, assumptions used are as follows:with the following assumptions: expected dividend yield of 0%; risk-free interest rate of 1.21%2.23%; expected volatility between 179% and 185%, and warrant exercise period based upon the stated terms.
3. Related Party Transactions not Disclosed Elsewhere
On December 1, 2015, the Company entered into an agreement with PT Kinerja Indonesia, an entity organized under the laws of Indonesia (“PT Kinerja”), for an exclusive, world-wide license to use and commercially exploit certain KinderjaPay technology and intellectual property. Pursuant170.2%. Due to the License Agreement and in consideration forconversion features on specified notes having variable conversion prices with no stated floor, the payment of royalties, the Company has been granted the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce platform that provides users with the convenience of e-commerce services for bill transfer and online shopping. Mr. Ng is the control person of PT Kinerja and a controlling shareholder, CEO and Chairman of the Company.
The Company purchases data, prepaid mobile plans, and more from a list of vendors that specialize in these transactions. We have a risk of loss as we are buying the plans without the right to return them, therefore we are a principal to the transaction and not an agent. Based upon this, gross revenue treatment appears reasonable for these transactions.
Both PT Kinerja and PT KinerjaPay Indonesia, the Company’s subsidiary created under the laws of Indonesia, are owned and controlled by Mr. Ng, and considered related. All revenue is earned by PT Kinerja, and then transferred to us either gross or net depending on the revenue transaction.
On February 19, 2016, we issued 1,333,333 shares of our common stock to Mr. Ng, our CEO, sole director and control person. Mr. Ng is the sole officer and directors and control person of PT Kinerja, the other party to this agreement, as payment for services as part of a service agreement resulting from the license agreement. The shareswarrants were valued at the closing price as of the date of the agreement ($0.9001) and resulted in full recognition of $1,200,133 in consulting services expense. The services provided andrequired to be provided under this service agreement are as follows:
(a) The Service Company shall provide the Companyclassified out of equity and the Subsidiary with the following services during a term of three (3) years from the date first set forth above (the “Services”), for which the Subsidiary shall pay the Service Company:
I. General Business Services: which shall include personnel, office facilities and equipment, utilities, and related overhead and operational expenses and shall be provided under the direction and control of a designated project manager; and
II. Technical Services: which shall include, but not be limited to, Web Hosting, Web Maintenance, Web Updates and System Upgrades, from time-to-time, which Technical Services will be fulfilled by a minimum of five (5) experienced computer engineers / programmers, one (1) algorithm specialist and two (2) trained technical engineers who shall maintain the servers provided by the Service Company and support the Subsidiary’s full time operations. In addition, the Service Company,included in support of the Technical Services, shall guarantee ninety-nine point nine-nine (99.99%) percent uptime of the Company’s domains and applications, and provide all requisite support for the traffic to the Company’s domains with unlimited bandwidth and scalable uplink whenever the traffic to the domains increases, from time-to-time; and
III. R&D Services: which shall include, but not be limited to, the development of new features, products, or services related to the KinerjaPay IP and KinerjaPay.com. In connection with the R&D Services, the Parties acknowledge that all new KinerjaPay IP that is developed or for which enhancements are created for KinerjaPay IP already in existence at the date of this Agreement (“Additional IP”) shall belong exclusively to the Company and its Subsidiary. The Parties further agree that in each instance, they will, in “good faith,” negotiate and execute separate, supplemental addendums to this Agreement to address the Services to be provided by the Service Company with respect to the Additional IP.
(b) The Subsidiary shall responsible for the following:
I. Sales and Marketing: PT. KinerjaPay Indonesia shall cover and be directly responsible for all sales and marketing activities and expenses associated with the commercial exploitation of the License for the KinerjaPay IP; and
II. Billing and Collections: PT. KinerjaPay Indonesia shall be responsible for all billing and collections and book all revenues generated by and from commercial exploitation of the License; and
III. Advertising and Sales Reps: PT. KinerjaPay Indonesia shall at all times maintain a staff of at least three (3) sales reps;
IV. Office and Administration: PT. KinerjaPay Indonesia shall retain at least one (1) person to provide office/administrative/accounting services to fulfill the duty of Subsidiary in Section 1B(ii) above.
In consideration for the Services to be provided, the Company shall pay or compensate the Service Company as follows: (i) Edwin Witarsa Ng, CEO and Chairman - 3,000,000 shares representing 34.77%; (ii)P.T. Starest Asset Management - 640,000 shares representing 7.42%; and (iii) Desa Sebong Lagoi Kec and Teluk Sebong Bintan Kepulauan Riau, Indonesia, 3,000,000 shares representing 34.77%warrant liabilities (Note 6).
TheDuring the second quarter of 2019, the Company shall issue to the Service Company 1,333,333 restricted shares. The restricted shares shall not be deemed fully-paid and non-assessable until eighteen (18) months from the date first set forth above; and (ii) The Subsidiary, on a quarterly basis, shall pay the Service Companyreceived $76,374 for the services, facilities and personnel provided by the Service Company be at the rate set forth in Appendix A attached hereto; and (iii) The Subsidiary, on a quarterly basis, shall pay the Service Company royalties equal to one (1%) percentsale of the net revenues generated from the commercial exploitationan additional 59,000 shares of the License; and (iv) The Service Company shall be paid a one-time set-up fee of $55,000 within three (3) business days of the execution of this Agreement.common stock.
As of September 30, 2017, we had $51,849 in accounts payable due to our CEO consisting of a $50,000 loan and $1,849 in expenses paid on behalf2019, none of the common stock related to the above sales had been issued, and are included in stock payable.
On November 7, 2019, effective as of May 7, 2019, the Company by our CEO. The balance is due on demand and accrues interest at 8% per annum. Asissued the 199,000 shares of common stock that had been recognized in Stock Payable as of September 30, 2017, $1,8302019.
Issuance of Shares of Common Stock for Services
On January 10, 2019, the Company issued a total of 3,200,000 restricted shares to various third parties for consulting services valued at $883,200 based upon the market price of the shares of $0.28 on the date of issuance. The fair value of the shares was recognized in accrued interestPrepaid assets and as the consulting agreements are for a term ending December 31, 2019, the expense will be recognized over the term of the agreement.
On January 15, 2019, the Company issued 250,000 restricted shares to a third party for consulting services already provided, valued at $155,000 based upon the market price of the shares of $0.62 on the date of issuance.
On March 10, 2019, the Company entered into a consulting agreement to issue 400,000 restricted shares to a third party for consulting services to be provided over the year term of the consulting agreement, valued at $200,000 based upon the market price of the shares of $0.50 on the date of the agreement. The fair value of the shares was duerecognized in Prepaid assets and the expense will be recognized over the term of the agreement. The shares were issued on July 2, 2019, and are included in Stock payable as of June 30, 2019.
On April 2, 2019, the Company issued a total of 300,000 restricted shares to a third party for consulting services already provided, valued at $180,000 based upon the market price of the shares of $0.60 on the date of issuance.
On May 23, 2019, the Company issued 150,000 fully vested common shares to a third party for consulting services for a 12 month term, in accordance with the terms of a consulting agreement dated April 17, 2019. The shares were valued at $63,000 based upon the market price of the shares of $0.42 on the date of issuance, and will be amortized over the life of the agreement. An additional 100,000 shares were issued on June 7, 2019, valued at $24,000, based upon the market price of the shares of $0.24 on the date of issuance. An additional 200,000 shares were issued on August 19, 2019, valued at $34,000, based upon the market price of the shares of $0.17 on the date of issuance. The additional shares issued are being amortized over the remaining term of the agreement.
On June 6, 2019, the Company entered into a consulting agreement to issue 500,000 restricted shares to two parties, for consulting services to be provided over the year term of the consulting agreement, valued at $115,000 based upon the market price of the shares of $0.23 on the date of the agreement. The fair value of the shares was expensed duringrecognized in Prepaid assets and the expense will be recognized over the term of the agreement. The shares were issued on July 2, 2019, and are included in Stock payable as of June 30, 2019.
On July 2, 2019, the Company issued 950,000 shares to consultants for services, with a fair value of $315,000, based on the fair value of the Company’s common stock on the date of the consulting agreements.
For the three and nine months ended September 30, 2017.2019, approximately $461,000 and $1,471,000 was recognized as consulting expense for the above issued shares.
4. Other AssetsWarrants
Warrants outstanding as of September 30, 2019 are as follows:
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | ||||||||||
| Outstanding at December 31, 2018 | 4,278,214 | $ | 1.28 | 3.3 | ||||||||
| Granted | 6,039,277 | $ | 0.17 | 4.8 | ||||||||
| Exercised | (525,000 | ) | ||||||||||
| Expired | (1,050,000 | ) | $ | 1.00 | ||||||||
| Outstanding at September 30, 2019 | 3,631,380 | $ | .63 | 4.5 | ||||||||
Note 9 - Commitments and Contingencies
On July 31, 2017,October 4, 2018, the Company entered into an 18 month license agreement through January 31, 2019, with Ace Legends Pte Ltd. (the “Service Company”a Preliminary Share Sale and Purchase Agreement between PT Kinerjapay Indonesia and PT Mitra Distribusi Utama (“PTMDU”) for an exclusive, world-wide license to acquire and marketPTMDU for Rp40,000,000,000 or approximately $2,758,621. However, during the games currently owned and developed bynegotiations regarding the Service Company. In considerationterms to complete the acquisition between the parties, there were several unresolved issues of which mutual agreement could not be reached, which prompted both parties to finally agreed to terminate the process of acquisition amicably.
On November 2, 2018, the Company filed a registration statement on Form S-1 for receiving the license and for becomingpurpose of offering a total of up to 300,000 shares of its 11% Series C Cumulative Redeemable Perpetual Preferred Stock (“Series C Preferred Stock”), at an Offering price of $25 per share. If the game publisher for allOffering is successful, of which there can be no assurance, the gross proceeds will be $7.5 million. The Company’s intention is to have these shares of Series C Preferred Stock subject to quotation on the OTCQB. Due to the termination of the Service Company’s games indefinitely,PTMDU acquisition, on October 30, 2019, the Company agreedwithdrew its registration statement.
The Company accrues for loss contingencies arising from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs incurred in connection with loss contingencies are expensed as incurred.
The Company has no current legal proceeding and did not accrue any loss for contingencies as of September 30, 2019 and December 31, 2018.
Note 10 - Subsequent Events
On December 10, 2018, the Company has entered into a signed commitment with PT. Investa Wahana Group, Indonesia to payinvest $200 million, subscribing for $100 million in shares of the Company’s Series F Convertible Preferred Stock and an addition $100 million in shares of the Company’s Series G Convertible Preferred Stock. To date, the Company has not received the subscription proceeds but we understand that the Wahana Group is still pursuing its efforts to monetize their subscription agreements utilizing collateral to support letters of credit.
The Series F Preferred Stock, which were authorized on January 18, 2019, bearing a dividend of 6% per annum, is convertible into shares of the Company’s Common Stock at an average of $1.80 per share. The Series G Preferred Stock, which were authorized on January 18, 2019, also pays a dividend of 6% per annum and further provides for the Company’s right to force the conversion at $1.80 per share, provided that the KinerjaPay shares are trading at $3.50 per share or higher for a period of 20 days commencing six months after the date of issuance of the Series G Preferred Stock.
KinerjaPay’s use of proceeds are to fund the Company’s peer-to-peer lending operations, potential acquisitions and strategic investments in the Company’s home-based region as part of their expansion plan for 2019. The Company also plans to allocate a certain portion of the subscription proceeds to repurchase KinerjaPay’s stock in the open market, subject to the Service Company $100,000 in four installmentsrules and regulations of $25,000 each. In addition,the SEC .
Subsequent to period end, the Company agreed to issue to the Service Company 80,000 restrictedconverted approximately $250,000 of principal on their convertible debentures and approximately $23,000 of accrued interest and fees into 7,167,266 shares of common stock .
On October 1, 2019, the Company entered into consulting agreements to issue 300,000 restricted shares each to two parties for a total of 600,000 restricted shares, for consulting services to be provided over the fifteen month term of the consulting agreements, valued at $66,000 based upon the market price of the shares of $0.11 on the date of the agreement. The fair value of the shares will be recognized in Prepaid assets and the expense will be recognized over the term of the agreement.
On October 2, 2019, the Company issued an additional 800,000 restricted shares to a third party for consulting services already provided pursuant to a consulting agreement dated November 14, 2017, valued at $88,000 based upon the market price of the shares of $0.11 on the date of issuance.
On October 1, 2019, the Company executed an 8% fixed convertible promissory note payable to Morningview Financial, LLC in the principal amount of $55,000 with a $5,000 OID, for a purchase price of $50,000, which shallis due on October 1, 2020. In the case of an event of default, as defined in the agreement, the principal amount of the note increases to 150%. The note is convertible into shares of Common Stock at a conversion price of 65% of the market price, as defined in the note. The discount increases 15% if there is an event of default, and 10% if the shares are not deliverable via DWAC. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. The conversion feature met the definition of a derivative and required bifurcation and to be deemed fully paid.accounted for as a derivative liability.
On October 23, 2019, a fifth tranche on the Crown Bridge June 13, 2018, for a 10% convertible promissory note in the amount of $30,000 was executed. The Company shall paynote is due twelve months after payment. In an event of default as set forth in the note, the interest rate increases to a default amount of 15%, and the default sum due becomes 150% of the principal outstanding and accrued interest. The note is convertible at a variable conversion rate of 65% of the lowest closing price during 20 days prior to the Serviceconversion date. If at any time while the note is outstanding, the conversion price is equal to or lower than $0.50, then an additional fifteen percent (15%) discount shall be factored into the conversion price. The discount will also be increased by 10% if the Company’s common shares are not DTC deliverable. Additionally, if the Company royalty feesfails to comply with the reporting requirements of 21%the Exchange Act (including but not limited to becoming late or delinquent in its filings, even if the Company subsequently cures such delinquency), the discount shall be increased an additional 15%. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of all sales generated undershares that is actually issuable upon full conversion of the license agreement, which payments shall paid onnote. The conversion feature met the definition of a quarterly basis. PT KinerjaPay Indonesia,derivative and required bifurcation and to be accounted for as a derivative liability. In connection with the subsidiaryfourth tranche, the Company issued 40,000 warrants, exercisable at $0.75, with a five year term.
On October 24, 2019, the Company entered into a convertible note with JSJ Investments, Inc. for the principal amount of $118,000, convertible into shares of common stock of the Company, shall also pay a monthly feewhich matures on October 17, 2020. The convertible note had an OID of $5,000, for a purchase price of $113,000. The note bears interest at 12%, which increases to 18% upon an event of default. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable conversion rate at a 40% discount to the Service Companylowest closing price during the 18 month termprevious twenty days to the conversion date. The conversion rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion price, in which case the adjusted conversion price is the lower of the licenseoriginal conversion price or 25% of the aggregate price. The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt of a conversion request. In an event of default, as defined in the note, the “default amount” shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by (B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded at any time between the issuance date and the date of the event of default. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for further business development.as a derivative liability on the date the note becomes convertible, either 180 days after issuance or upon an event of default.
The amortization expenseOn October 29, 2019, the Company entered into a convertible note with Armada Investment Fund for the period endedprincipal amount of $91,500 with a purchase price of $83,000, convertible into shares of common stock of the Company, which matures on July 29, 2020. If the note is not paid at maturity date then the outstanding principal due under the note shall increase by $15,000. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.30 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DWAC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
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On October 29, 2019, the Company entered into a convertible note with BHP Capital NY, Inc. for the principal amount of $91,500 with a purchase price of $83,000, convertible into shares of common stock of the Company, which matures on July 29, 2020. If the note is not paid at maturity date then the outstanding principal due under the note shall increase by $15,000. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
On October 29, 2019, the Company entered into a convertible note with Jefferson Street Capital, LLC for the principal amount of $91,500 with a purchase price of $83,000, convertible into shares of common stock of the Company, which matures on July 29, 2020. If the note is not paid at maturity date then the outstanding principal due under the note shall increase by $15,000. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
On November 7, 2019, effective as of May 7, 2019, the Company issued the 199,000 shares of common stock that had been recognized in Stock Payable as of September 30, 2017 was immaterial2019.
On October 1, 2019 the Company entered into a third convertible note receivable with Quad M in the principal amount of $94,000, with a maturity date of September 30, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In certain events of default as set forth in the note, the outstanding principal balance increases by 20%. During the first 180 days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 110% to 135% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The note is convertible at a variable conversion price of 60% of the lowest trading price of Quad M’s common stock over the twenty days prior to the Company.conversion date.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
5. Going ConcernForward-Looking Statements
The accompanyingThis report may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements have beenare prepared in conformityaccordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of America, which contemplate continuation of the Company as a going concern. The Company has not established sufficient revenue to cover its 2017 operating costs,assets and as such, has incurred an operating loss since inception. Further,liabilities as of September 30, 2017, the cash resources of the Company were insufficient to meet its current business plan. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
6. Subsequent Events
There were no material subsequent events following the period ended September 30, 2017 and throughout the date of the filingfinancial statements as well as the reported amounts of Form 10-Q.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.Back to Table of Contents
As used in this Form 10-Q, referencesrevenue and expenses during the periods presented. Our financial statements would be affected to the “KinerjaPay,” Company,” “we,” “our” or “us” refer to KinerjaPay Corp. Unless the context otherwise indicates.
extent there are material differences between these estimates and actual results. The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read alongin conjunction with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified bythereto appearing elsewhere in this report.
Unless otherwise indicated or the context requires otherwise, the words like believe, expect, estimate, anticipate, intend, project and similar expressions,“we,” “us,” “our,” the “Company” or words which“our Company” or “KinerjaPay Corp” refer to future events. These forward-looking statementsKinerjaPay Corp., a Delaware corporation, and its wholly-owned subsidiaries, PT Kinerja Pay Indonesia (“PT Kinerja Pay”) and PT Kinerja Indonesia (“PT Kinerja”). PT Kinerja Simpan Pinjam (“PT Kinerja SP”) is a wholly-owned subsidiary of PT Kinerja. All subsidiaries of the Company are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.organized under the laws of Indonesia.
PlanCorporate Overview and History
Our business aim is to build a secure and convenient e-commerce ecosystem to customers and merchants through our introduction of Operationsservices and products including: (i) electronic payment service; and (ii) virtual marketplace both of which are available on the portal, KinerjaPay.com, (the “Portal”). In addition to access to the Portal, our Android and iPhone based mobile application includes additional in-app services to mobile phone users such as social engagement and digital entertainment (the “Mobile App”). A virtual marketplace, powered by our proprietary electronic payment service and gamified with in-app entertainment features, creates a one-stop-shop e-commerce platform for users to BUY, PAY and PLAY. We brand our virtual marketplace under the name of KMALL, our electronic payment solution under the name of KPAY, and our gamification features under the name of KGAMES.
The Company was incorporated in Delaware on February 12, 2010 under the name Solarflex Corp. for the purpose of developing, manufacturing and selling a solar photovoltaic element a device that converts light(the “Equipment”). The Company entered into electrical flow (also known as a photovoltaic cell) basedan Asset Purchase Agreement with International Executive Consulting SPRL, organized under the laws of Belgium (“IEC”) on certain proprietary technologyMay 14, 2013 to enable an increase in solar energy conversion and provide energy at a lower cost. Wecommercialize the Equipment. Since the Company did not generate any revenuesrevenue from the saleEquipment, we determined that it was not in the best interest of any solar photovoltaic element, nor did we successfully manufacturerthe Company or construct a working prototype. We determined duringits shareholders to continue devoting resources and incurring expenditures towards efforts to commercialize the 4th quarter of 2015 to evaluate potential business opportunities.Equipment.
On November 10, 2015, the Company entered into an Asset Purchase Rescission Agreement with IEC (the “Rescission Agreement”) pursuant to which: (i) we transferred and assigned all right, title and interest in the Equipment back to IEC; (ii) IEC returned 333,333 of the 2,000,000 Shares back to the Company; (iii) IEC transferred and assigned the remaining 1,666,667 Shares to Mr. Edwin Witarsa Ng (“Mr. Ng”), a resident of Indonesia, who was appointed as Chairman of our Board of Directors, in consideration for a cash payment by Mr. Ng of $20,000 to IEC. The rationale of the Rescission Agreement was based upon our determination not to pursue the use and commercial exploitation of the Equipment in furtherance of its former solar energy business plan.
On December 1, 2015, the Company entered into a license agreement (the “License Agreement”) with PT Kinerja Indonesia, an entity organized under the laws of Indonesia and controlled by Mr. Ng (“PT Kinerja”), for an exclusive, world-wide license to use and commercially exploit certain technology and intellectual property owned by PT Kinerja (the “KinerjaPay IP”) and its website, KinerjaPay.com. KinerjaPay.com (the “Portal”). The Portal, and the technology behind it, KinerjaPay IP, create an e-commerce platform that provides electronic payment solutions to customers and merchants for bill payment, money transfer and online shopping. KinerjaPay.com is among the first portals that allow users to conveniently top up mobile phone credit in Indonesia.
Pursuant to the License Agreement, the Company was granted the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce portal.
The Company purchases data, prepaid mobile plans, and more from a list of vendors that specialize in these transactions. We have a risk of loss as we are buying the plans without the right to return them, therefore we are a principal to the transaction and not an agent. Based upon this, gross revenue treatment appears reasonable for these transactions.
Both PT Kinerja and PT KinerjaPay Indonesia, the Company’s subsidiary created under the laws of Indonesia, are owned and controlled by Mr. Ng, and considered related. All revenue is earned by PT Kinerja, and then transferred to us either gross or net depending on the revenue transaction.
In connection with the License Agreement, we agreed to: (i) change the name of the Company from Solarflex Corp to KinerjaPay Corp.; (ii) implement a reverse split of ourthe Company’s shares of common stock on a one-for-thirty (1:30) basis; and (iii) raise equity capital in the minimum offering amount of $500,000 and the maximum offering amount of $2,500,000 through the offering of units at a price of $0.50, each Unit, each consisting$0.50. Each unit consists of 1 share of common stock (post-reverse) and 1 classClass A warrant exercisable for a period of 24 months to purchase 1 additional share of common stock (post-reverse) at $1.00.$1.00 (“Unit Offering”). The Unit Offering wasis only being made only to “accredited investors” who are not U.S. Persons in reliance uponpursuant to Regulation S promulgated by the SEC under the Securities Act of 1933, as amended (the “Act”“Securities Act”). On January 20, 2016, the Company closed the Minimumits first Unit Offering after it receivedreceiving subscription proceeds in excess of $500,000. To date, the Company has raised $1,540,000 pursuant to subsequent Unit Offerings.
As ofOn March 10, 2016, the Company’s name changechanged to KinerjaPay Corp., and its one-for-thirty (1:30) reverse stock split became effective. The
On April 6, 2016, PT Kinerja Pay Indonesia (“PT Kinerja Pay”), a wholly-owned subsidiary of the Company, was organized under the laws of Indonesia, for the purpose of developing and managing the Company’s sharese-commerce business ranging from electronic payment solutions, virtual marketplace, and any other strategies within the e-commerce ecosystem in Indonesia.
On August 31, 2018, the Company completed the acquisition of common stock areits licensor PT Kinerja Indonesia (“PT Kinerja”), which became a wholly-owned subsidiary of the Company. PT Kinerja Indonesia continues to provide the technology solutions needed by the Company to support its e-commerce business and may expand into cloud computing services and other IT service-related businesses.
On September 13, 2018, PT Kinerja Simpan Pinjam (“PT Kinerja SP”), a wholly-owned subsidiary of PT Kinerja, was organized under the laws of Indonesia for the purpose of developing and managing a peer-to-peer (“P2P”) lending platform focusing on micro-lending activities. As one of Indonesia’s fintech P2P lending companies, PT. Kinerja SP with its brand KFUND is subject to quotation on the OTCQB market under the symbol KPAY.
Our principal products and services are (i) our electronic payment service (the “EPS”); and (ii) our virtual marketplace (the “Marketplace”supervision by Financial Service Authority (Otoritas Jasa Keuangan – “OJK”) both of which are available on our portal under the domainIndonesia. OJK requested PT KSP to change its company name KinerjaPay.com (the “Portal”). Our Android-based mobile app not only serves as an extension of desktop or laptop access to our website, but has additional in-app servicescomply with a recently issued regulation that cater to mobile users, such as social engagement and digital entertainment (the “Mobile App”). We believestates that in combining our EPS function (“PAY”) with the ability to buy and sell products via our virtual marketplace (“Buy”) enhanced by a gamification component (“Play”) our customers and merchants increase their loyalty to our services.
Indonesia, the world’s fourth most-populous country, having a population estimated to be 255 million people, is becoming an economic power in the Southeast Asia region. Over 50% of its population is below the age of 30 and we believe that the young Indonesian population is highly adaptive to new technology. The rise of Smartphones and tablets that sell for less than US$100 is rapidly broadening internet access and pushing the Indonesian e-commerce market toward a critical point in terms of scale and profitability, in spite of significant challenges due to poor infrastructure and payment systems. The number of internet users is excepted to double to 125 million by 2018 and Smartphone ownership is to rise from 20 per cent to 52 per cent in the same period, the highest percentage compared to other Southeast Asian countries, according to Redwing, an advisory group.
Notwithstanding our belief that our Portal represents a significant advance as compared to other Indonesian portals, there are a number of potential difficulties that we might face, including the following:
● WeP2P company may not be ablehave the word “simpan” (to save or to raise sufficient additionaldeposit) in its name because it is not allowed to deposit funds to fully implement our business plan and grow our business;
● Competitors may develop alternatives that render our Portal services redundant or unnecessary;
● Our proprietary technology may be shown to have characteristics that may render it insufficient for our business;
● Our Portal may not become widely accepted by consumers and merchants; and
● Strict, new government regulations and inappropriate e-commerce policies, especially in an emerging economy such as Indonesia, may hinder the growth of the e-commerce market.
We may bebut is expected to require upchannel funds by bringing together lenders and borrowers. Based on this requirement, the Company changed its name to an additional $2.5 million in capital during the next 12 months to fully implement our business plan and fund our operations.PT Kinerja Sukses Gemilang (“PT Kinerja SG”), on August 30, 2019.
ResultsOn February 28, 2019, Kinerja Pay Ltd.a wholly-owned subsidiary of Operations duringPT Kinerja, was incorporated in Nevada.. The subsidiary has no employees or operations, aside from a bank account to receive cash proceeds from security purchase agreements and convertible debentures, which is then transferred to the three months endedParent company or other subsidiaries.
Result of Operations
Comparison of the Three Months Ended September 30, 2017 as compared2019 to the three months endedThree Months Ended September 30, 20162018
During the three months ended September 30, 2017 and 2016, we generated revenue from services of $1,763,608 and $0, respectively. During the three months ended September 30, 2017, we had costs related to our services revenue of $1,842,985 resulting in a negative gross margin of $79,377. We incurred no costs related to service revenues during the three months ended September 30, 2017.Revenue
During the three months ended September 30, 2017,2019, we had general and administrative expensesgenerated gross revenues of $444,732 and depreciation expenseapproximately $98,000. Our cost of $940 assales were approximately $100,000, yielding a negative gross profit of approximately $2,000, compared to $363,434 and $17, respectively, during the same period in the prior year . Duringnet revenues of approximately $182,000 for the three months ended September 30, 2017, we had other costs2018. A majority of that net revenues was from a related party as they were recognized under the license agreement with PT. Kinerja only on a net basis as an agent, which resulted in net revenue. Since the acquisition in August of 2018, the revenue is no longer under a license agreement and is recognized on a gross basis as principal.
Expenses
Our expenses relatedfor the three months ended September 30, 2019 are summarized as follows in comparison to interest expense of $1,830the three months ended September 30, 2018:
| Three Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Marketing Expenses | $ | 30,806 | $ | - | ||||
| General and administrative | 1,111,134 | 2,146,157 | ||||||
| Depreciation | 16,473 | 68,957 | ||||||
| Other income (expense) | $ | (3,520,208 | ) | $ | (1,251,500 | ) | ||
Marketing expenses for the three months ended September 30, 2019 increased as compared to $137 inthere were no marketing expenses for the same period in 2018. This was the prior year. Our total other costsresult of the Company trying to grow their business on their portal.
General and administrative expenses were $1,830for the three months ended September 30, 2019 decreased by 48% compared to the same period in 2018. The main components of general and administrative expenses in 2019 consisted of approximately $655,000 in consulting fees, including the amortization of the preferred shares issued in the FRS acquisition, and approximately $180,000 in accounting, legal and professional fees,. The legal and professional fees are primarily fees related to the convertible debentures, both for issuance and opinion letters related to the conversions of the convertible debentures plus approximately $34,000 relating to accounting fees. Included in general and administrative expenses in the three months ending September 30, 2018 was approximately $973,000 in shares issued for services and $53,000 in legal and professional fees.
Other income (expense) mostly increased during the three months ended September 30, 2017 as compared2019 due to $137the expenses related to the convertible debentures, including changes in fair value of the derivative and warrant liabilities, amortization of the debt discount, financing expenses from the fair value of the derivatives being greater than the face value of the convertible debenture, and penalties and loss on the conversions. Only the penalties and loss on conversion of debt transactions occurred during the same period in the prior year.2018.
We had a net loss of $526,879 duringDepreciation expense decreased in the three months ended September 30, 2017 as compared to a net loss $363,588 during the three months ended September 30, 2016.
Results of Operations during the nine months ended September 30, 20172019 as compared to the nine months endedsame period in 2018, due to an adjustment related to the fixed assets associated with the PT Kinerja acquisition.
Comparison of the Nine Months Ended September 30, 20162019 to the Nine Months Ended September 30, 2018
During the nine months ended September 30, 2017 and 2016, we generated revenue from services of $1,914,358 and $0, respectively. During the nine months ended September 30, 2017, we had costs related to our services revenue of $2,002,073 resulting in a negative gross margin of $87,715. We incurred no costs related to service revenues during the nine months ended September 30, 2016.Revenue
During the nine months ended September 30, 2017,2019, we had general and administrative expensesgenerated gross revenues of $3,993,974 and depreciation expenseapproximately $361,000. Our cost of $1,896 assales were approximately $347,000, yielding gross profit of approximately $14,000. This is compared to $2,444,238gross revenues of approximately $3,033,000 and $103, respectively, duringcost of sales of approximately $2,850,000, resulting in a gross profit of approximately $183,000 for the same periodthree months ended September 30, 2019. A majority of that net revenues in 2018 was from a related party as they were recognized under the prior year . Duringlicense agreement with PT. Kinerja only on a net basis as an agent, which resulted in net revenue. Since the acquisition in August of 2018, the revenue is no longer under a license agreement and is recognized on a gross basis as principal.
Expenses
Our expenses for the nine months ended September 30, 2017, we had other costs2019 are summarized as follows in comparison to the nine months ended September 30, 2018:
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Marketing Expenses | $ | 149,504 | $ | - | ||||
| General and administrative | 7,160,617 | 6,526,020 | ||||||
| Depreciation | 42,050 | 71,008 | ||||||
| Other income (expense) | $ | (9,682,847 | ) | $ | (1,450,102 | ) | ||
Marketing expenses for the nine months ended June 30, 2019 increased as there were no marketing expenses for the same period in 2018. This was the result of the Company trying to grow its business on its portal.
General and administrative expenses for the nine months ended September 30, 2019 increased by 10% compared to the same period in 2018. The main components of general and administrative expenses in 2019 consisted of approximately $2,086,000 in consulting fees which also includes amortization of the preferred shares issued in the FRS acquisition, approximately $3,560,000 in preferred shares issued to the CEO for a bonus related to interest expenseraising capital on the expected financing, $363,000 of, $1,844 and a loss of $442,697approximately $545,000 in accounting, legal and professional fees. The legal and professional fees are primarily fees related to debt conversion as compared to interest expenses of $31the convertible debentures, both for issuance and a loss of $9,003 dueopinion letters related to the extinguishmentconversions of debtthe convertible debentures plus approximately $57,000 relating to accounting fees. Included in general and administrative expenses in the nine months ending September 30, 2018 was approximately $4,576,000 in shares issued for services and $749,000 in legal and professional fees.
Other income (expense) mostly increased during the nine months ended September 30, 2016. Our total costs2019 due to the increased expenses related to the new convertible debentures entered into in 2019, including changes in fair value of the derivative and warrant liabilities, amortization of the debt discount, financing expenses were $444,541from the fair value of the derivatives being greater than the face value of the convertible debenture, and penalties and loss on the conversions. Only the penalties and loss on conversion of debt transactions occurred during the same period in 2018.
Depreciation expense decreased in the nine months ended September 30, 20172019 as compared to $9,034 in the same period in 2018, due to an adjustment of the prior year.
We had a net loss of $4,528,126 duringfixed assets associated with the nine months ended September 30, 2017 as compared to a net loss $2,453,375 during the nine months ended September 30, 2016.PT Kinerja acquisition.
Working Capital
| September 30, 2019 | December 31, 2018 | |||||||
| Current assets | $ | 2,324,654 | $ | 401,785 | ||||
| Current liabilities | 9,106,576 | 3,996,097 | ||||||
| Working capital (deficiency) | $ | (6,781,922 | ) | $ | (3,594,312 | ) | ||
Current assets increased by approximately $1,923,000, which was primarily attributable to an increase in prepaid expenses due to the issuance of common shares for consulting services of approximately $1,319,000 to be expensed over the one year term of the agreements and the current portion of the preferred shares issued in the FRS acquisition of approximately $791,000, less amortization for the period of $958,000, and $247,000 paid to third parties as a finder’s fee for a future financing and related standby letter of credit. Additionally cash increased by approximately $277,000, the result of cash proceeds from convertible debentures Current liabilities increased by approximately $4,423,000, which was primarily attributable to the following: (i) an increase of approximately $3,374,000 in the fair value of the derivative liability, which included $6,527,000 in additions to the derivative liability related to new convertible debentures and penalties offset by $2,821,000 of the derivative liability reclassed to equity upon conversion of the related convertible debentures; (ii) an increase in the fair value of the warrant liability of $3,374,000, which included $1,010,000,000 from the fair value of newly issued warrants and a decrease of $541,000 from exercised and expired warrants; and (iii) and an increase in accrued expenses for accrued interest on the convertible debentures, offset by a slight decrease in convertible debentures due to conversions of the debentures and the newly issued convertible debentures being fully reduced by debt discounts arising from the bifurcation and classification of their conversion features as derivative liabilities.
Liquidity and Capital Resources
On
| Nine Months Ended September 30, | ||||||||
| 2019 | 2018 | |||||||
| Net loss | $ | (17,021,463 | ) | $ | (7,864,289 | ) | ||
| Net cash used in operating activities | (2,622,091 | ) | (2,552,834 | ) | ||||
| Net cash used in investing activities | (342,111 | ) | (2,720 | ) | ||||
| Net cash provided by financing activities | 3,193,993 | 2,515,000 | ||||||
| Increase/(decrease) in cash | $ | 277,073 | $ | (93,887 | ) | |||
Net cash used in operating activities slightly increased only by approximately 3% for the nine months ended September 30, 2017, we had $124,4092019, as compared with the same period in current assets represented by cash of $60,488, restricted cash of $29,841, accounts receivable of $22,632 and prepaid expenses of $11,448. On December 31, 2016, we had $77,738 in current assets consisting of $32,5912018. The difference in cash $16,181used was a result of the increase in restricted cashthe net loss of approximately $9,114,000, plus the increase in non-cash activities, including the issuance of preferred stock for services of approximately $3,724,000 and $28,966common shares for approximately $1,736,000, the penalties and loss on conversions and modifications of common and preferred stock of approximately $2,168,000, the financing costs of approximately $2,923,000, the net increase in the fair value of the derivative and warrant liabilities of $636,000 and the amortization of debt discount of approximately $3,279,000. None of these same charges occurred in the nine months ended September 30, 2018, except for approximately $3,336,000 in shares issued for services and approximately $1,643,000 for penalties and loss on conversions of debt and preferred stock. Additionally, there was an increase of approximately $726,000 in prepaid expenses.and other assets related to shares issued for future services and amounts paid in advance for listing in Malta and a finder’s fee for future expected financing, net of the amortization over the related terms, and an increase in accrued liabilities and interest. The cash used in operating activities in 2018 consisted mainly of the net loss of approximately $7,864,000 offset by the non-cash expense of stock-based compensation and the penalties and loss on conversions recognized during the nine months.
We hadNet cash used in investing activities for the nine months ended September 30, 2019 increased by approximately $340,000 as compared to the same period in 2018. The increase was due to the increase of fixed assets used in connection with the inclusion of $13,636 and intangible assets of $25,000PT Kinerja since its acquisition, as ofwell as approximately $236,000 invested in convertible notes receivable.
During the nine months ended September 30, 20172019, financing activities mainly consisted of $3,600,000 in proceeds from convertible debentures and fixed assets$146,000 in cash received in from the sale of $3,845 asshare and warrants units, offset by payments made on the convertible debentures and the promissory note arising from the acquisition of December 31, 2016. We had total assets of of $163,045 as of September 30, 2017 and $81,583 as of December 31, 2016. As of September 30, 2017, we had $57,371 in current liabilities comprised of $2,782 in accounts payable, $51,849 in accounts payable to a related party, tax payable of $907, accrued interest of $1,830 and accrued expense of $3. As of December 31, 2016, we had total current liabilities of $157,663 consisting of accounts payable of $3,461, tax payable of $95, accrued expenses of $4,107 and unissued stock subscriptions of $150,000.
We had no long-term liabilities as of September 30, 2017 and December 31, 2016.
We used $1,049,360 in our operatingPT Kinerja. The financing activities during the nine months ended September 30, 2017,2018, consisted of $500,000 for the sale of preferred stock, $100,000 from the exercise of warrants and $1,915,000 proceeds on debt.
Convertible Note Agreements
On January 2, 2019, the Company executed an 12% convertible promissory note payable to Power Up Lending, LLC in the principal amount of $43,000, which is due on October 30, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. The holder did not require the inclusion of the default penalty recognized by the Company on April 15, 2019, as such, the penalty was reversed upon the redemption. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability. On July 2, 2019, the Company exercised its option to redeem the January 2, 2019 debenture, for a redemption price at $85,000. The principal of $43,000 was derecognized with the additional $42,000 paid upon redemption recognized as a financing cost. As a result of the redemption, the unamortized discount related to the redeemed balance of $64,500 was immediately expensed.
On January 18, 2019, the Company entered into a convertible note with Tangiers Global, LLC for the principal amount of $165,000, with an OID of $15,000, convertible into shares of common stock of the Company, which matures on January 18, 2020. The note bears interest at 10%, which increases to 20% upon an event of default. In an event of default as set forth in the note, the outstanding principal balance increases by 40%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $66,000. As a result the outstanding balance of the note as of June 30, 2019, was $231,000. On August 6, 2019, the Tangiers note was purchased from Tangiers by three other noteholders for a purchase price of $254,000, which included the default penalty and accrued interest. The note is convertible at 65% multiplied by the lowest closing price during the 15 days prior to the conversion. The discount increases by 5% discount if there is a DTC “chill” in effect., and an additional 5% if the Company is not DWAC eligible. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. On various dates in August and September 2019, $165,508 of principal and $10,000 of accrued interest and fees of the note was converted by the new holders into 3,915,217 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of $280,000 relating to the conversion feature was reclassified to equity.
On January 25, 2019, the Company entered into a convertible note with Armada Investment Fund LLC for the principal amount of $38,500 for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. In connection with the note, the Company issued 115,500 warrants, exercisable at $0.49, with a five year term. The Armada January 2019 note was fully converted on August 1, 2019, into 1,087,685 shares of the Company’s common stock at a conversion price of $0.06, at which time the derivative fair value of approximately $66,000 relating to the conversion feature was reclassified to equity.
On January 25, 2019, the Company entered into a convertible note with Jefferson Street Capital LLC for the principal amount of $38,500 for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. In connection with the note, the Company issued 115,500 warrants, exercisable at $0.49, with a five year term. On various dates in August and September 2019, the Jefferson Street January 2019 note was fully converted into 2,015,812 shares of the Company’s common stock at conversion prices ranging from of $0.04 to $0.06, at which time the derivative fair value of $70,000 relating to the conversion feature was reclassified to equity.
On January 25, 2019, the Company entered into a convertible note with BHP Capital NY, Inc. for the principal amount of $38,500 for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture. In connection with the note, the Company issued 115,500 warrants, exercisable at $0.49, with a five year term. The BHP January 2019 note was fully converted on August 1, 2019, into 1,107,685 shares of the Company’s common stock at a conversion price of $0.06, at which time the derivative fair value of approximately $66,000 relating to the conversion feature was reclassified to equity.
On January 28, 2019, the Company executed an 12% convertible promissory note payable to Power Up Lending, LLC in the principal amount of $48,000, which is due on November 30, 2019. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $24,000. As a result the outstanding balance of the note as of June 30, 2019, was $72,000. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. On several dates in August 2019, $45,000 of the PowerUp January 28, 2019 note was converted into 702,028 shares of the Company’s common stock, at which time the derivative fair value of approximately $49,000 relating to the conversion feature was reclassified to equity.
On February 28, 2019, the Company executed an 10% fixed convertible promissory note payable to Crossover Capital Fund I, LLC in the principal amount of $115,000 with a $10,000 OID, which is due on November 28, 2019. In the case of a sale event, as defined in the agreement, the principal amount of the note increases to 150%. The note is convertible into shares of Common Stock at a conversion price of the lower of (i) $1.00 per share or (ii) 65% of the lowest trading price for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount increases 10% if there is a DTC “chill” in effect. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 125% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. On September 6, 2019, the Crossover note was fully converted into 2,219,872 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $139,000 relating to the conversion feature was reclassified to equity.
On March 4, 2019, the Company executed an 8% fixed convertible promissory note payable to Morningview Financial, LLC in the principal amount of $55,000 with a $5,000 OID, for a purchase price of $50,000, which is due on March 5, 2020. In the case of a sale event, as defined in the agreement, the principal amount of the note increases to 150%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a result the outstanding balance of the note as of June 30, 2019, was $82,500. The note is convertible into shares of Common Stock at a conversion price of 65% of the market price, as defined in the note. The discount increases 15% if there is an event of default, and 10% if the shares are not deliverable via DWAC. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. On September 6, 2019, the Morningview note was fully converted into 1,786,022 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $110,000 relating to the conversion feature was reclassified to equity.
On March 5, 2019, the Company executed an 12% convertible promissory note payable to Power Up Lending, LLC in the principal amount of $53,000, which is due on January 15, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $26,500. As a result the outstanding balance of the note as of June 30, 2019, was $79,500. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability. On September 7, 2019, the Company exercised its option to redeem the March 5, 2019 debenture, for a redemption price at $84,286. The principal of $53,000 was derecognized with the additional $31,286 paid upon redemption recognized as a financing cost. As a result of the redemption, the unamortized discount related to the converted balance of $53,000 was immediately expensed.
On March 14, 2019, the Company entered into a 12% convertible note for the principal amount of $118,000 with JSJ Investments, Inc, which matures on March 14, 2020, and has a $5,000 OID. The holder will also deduct $13,000 from the purchase price for legal and due diligence fees. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable conversion rate at 60% of market price (as defined in the note). The conversion rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt of a conversion request. In an event of default, as defined in the note, the “default amount” shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by (B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded at any time between the issuance date and the date of the event of default .Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture, and at 150% after 180 days. On September 18, 2019, $60,000 of the JSJ March 14, 2019 note was converted into 813,008 shares of the Company’s common stock at which time the derivative fair value of approximately $89,000 relating to the conversion feature was reclassified to equity.
On March 25, 2019, the Company executed an 8% convertible promissory note payable to Belridge Capital L.P. in the principal amount of $137,500, for a purchase price of $125,000, which is due on March 24, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 18%, and the default sum due becomes 130% of the principal outstanding and accrued interest (the “default redemption amount”). Alternatively, at the election of the holder, the Holder may require the Company to redeem all or part of the default redemption amount through the issuance of such number of shares of common stock equal to (x) the default redemption amount, divided by (y) or 55% of the lowest traded price in the 20 trading days prior to the conversion date. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $41,250. The note is convertible into shares of common stock at a conversion price of the lower of (i) $1.00 per share or (ii) 61% of the lowest trading price for the 20 prior trading days prior to the conversion date. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The Company may redeem the note at any time the note is outstanding and there is not an event of default, at amounts ranging in the first 90 days from the date of issuance from 115% to 135% of the principal and accrued interest balance, based on the redemption date’s passage of time. The note also includes a “most favored nation” clause, whereby when the Company enters into any future financing transactions with a third-party investor, the Company must provide the holder notification of the terms of the new financing transaction, and if the holder determines that the terms of the subsequent investment are preferable to the original terms of the March 25, 2019 convertible promissory note, the original terms of the note will be amended and restated, which may include the conversion terms. On September 24, 2019, the Company exercised its option to redeem the debenture, for a redemption price at $192,582, 135% of the principal and accrued interest amount. The principal of $137,500 plus accrued interest was derecognized with the additional $49,929 paid upon redemption recognized as a financing cost. As a result of the redemption, the unamortized discount related to the converted balance of $103,125 was immediately expensed.
On April 1, 2019, the Company executed a 12% fixed convertible promissory note payable to Power Up Lending, LLC in the principal amount of $43,000, and is due on February 15, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $21,500. As a result the outstanding balance of the note as of June 30, 2019, was $64,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion price of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall equal the lesser of: (i) $1.75; and (ii) 61% multiplied by the market price, as defined in the agreement. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On April 25, 2019, the Company executed an 8% fixed convertible promissory note payable to Tiger Trout Capital, LLC in the principal amount of $110,000, and is due on May 17, 2020. The convertible note had a OID of $10,000, for a purchase price of $100,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 18%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On May 20, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $55,000. As a result the outstanding balance of the note as of June 30, 2019, was $165,000. On September 17, 2019, the outstanding note was acquired from Tiger Trout by Adar Alef, LLC. The note is convertible into shares of Common Stock at 65% of the lowest trading price of the common stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The conversion price is adjusted if any 3rd party has the right to convert monies at a discount to market greater than the conversion price in effect at that time then the holder, may utilize such greater discount percentage. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Additionally, upon an event of default the conversion rate increases to 55% of the lowest trading price during the 20 days prior to conversion. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. The Company may redeem the note at amounts ranging from 110% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On May 9, 2019, the Company entered into a 12% convertible promissory note with Labrys Fund LP (“Labrys”) for $282,000, which matures on November 6, 2019. The interest rate increases to a default rate of 24% for events as set forth in the agreement, including if the market capitalization is below $5 million, or there are any dilutive issuances. There is a right of prepayment in the first 180 days, but there is no right to repay after 180 days. Per the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the note. There is also a cross default provision to all other notes. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. On May 20, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $141,000. As a result the outstanding balance of the note as of June 30, 2019, was $423,000. Additionally, If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any new debt. Additionally, if the note is not repaid by the maturity date the principal balance increases by $15,000. On September 18, 2019, the outstanding note was acquired from Labrys by Granite Global Value Investments, LTD, consisting of $232,000 of principal, $141,000 of default penalties and $22,752 of accrued interest.
The note is convertible into shares of the Company’s common stock at a variable conversion rate that is equal to the lesser of the lowest trading price for the last 20 days prior to the issuance of the note or 45% of the lowest market price over the 20 days prior to conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. There are additional 12% adjustments to the conversion price for events set forth in the agreement, including if the conversion price is less than $0.01, if the Company is not DTC eligible, the Company is no longer a reporting company, or the note cannot be converted into free trading shares on or after six months from issue date. The holder has the option to increase the principal by $5,000 per each default occurrence instead of applying further discounts to the conversion price. However, under no circumstances shall the principal amount exceed an additional $25,000 nor can the conversion price be less than 30% multiplied by the market price due to the cumulative effect. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. On September 5, 2019, $50,000 of the Labrys 2019 note was converted into 1,000,100 shares of the Company’s common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $77,000 relating to the conversion feature was reclassified to equity.
On May 17, 2019, the Company executed a 10% fixed convertible promissory note payable to Crossover Capital Fund I, LLC in the principal amount of $82,500, and is due on May 17, 2020. The convertible note had an OID of $7,500, for a purchase price of $75,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the fixed price of $1.00 or (ii) 61% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable. Additionally, if the Company fails to comply with the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings, even if the Company subsequently cures such delinquency), the discount shall be increased an additional 15%. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On May 15, 2019, the Company entered into a convertible note with Auctus Fund for the principal amount of $200,000, convertible into shares of common stock of the Company, which matures on February 15, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. On May 20, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $100,000. As a result the outstanding balance of the note as of June 30, 2019, was $300,000. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On May 29, 2019, the Company executed a 10% fixed convertible promissory note payable to Illiad Research for the principal amount of $115,000, which matures on May 29, 2020. The convertible note had an OID of $5,000, plus $5,000 was deducted from the purchase price for legal and due diligence fees for a purchase price of $100,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 22% and the principal balance increases by 15%. The note is convertible into shares of Common Stock at a conversion price equal to 60% multiplied by the lowest closing trade price during the 20 trading days immediately preceding the applicable conversion. Per the agreement, the Company is required at all times to have 1,800,000 common shares reserved. The Company may prepay the note at 125% of the principal and accrued interest balance.
On June 3, 2019, the Company entered into a convertible note with GS Capital for the principal amount of $192,500, convertible into shares of common stock of the Company, which matures on June 3, 2020. The convertible note had an OID of $17,500, for a purchase price of $175,000. The note bears interest at 10%, which increases to 24% upon an event of default. In an event of default as set forth in the note, including if the Company does not pay the note at maturity, or the common stock of the Company is delisted or loses its bid price, the default sum becomes 110% to 150% of the principal outstanding and accrued interest. The note is convertible beginning on the six month anniversary of the note, at the lesser of: (i) $1.00; or (ii) 60% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note. The discount shall increase to 50% if the Company experiences a DTC “chill”. If the Company is not current in their filings with the SEC after the six month anniversary of the note, the holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
On June 28, 2019, the Company entered into a convertible note with JSJ Investments, Inc. which was funded on July 2, 2019, for the principal amount of $118,000, convertible into shares of common stock of the Company, which matures on July 11, 2019. The convertible note had an OID of $5,000, for a purchase price of $113,000. The note bears interest at 12%, which increases to 18% upon an event of default. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable conversion rate at a 40% discount to the lowest closing price during the previous twenty days to the conversion date. The conversion rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt of a conversion request. In an event of default, as defined in the note, the “default amount” shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by (B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded at any time between the issuance date and the date of the event of default. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture, and at 150% after 180 days.
On July 8, 2019, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with EMA Financial LLC, which matures on April 8, 2020. The holder may extend the maturity date up to one year, by written notice at least five days before the original maturity date. The convertible note had an OID of $9,000, for a purchase price of $141,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%, and the default sum due becomes 200% of the principal outstanding and accrued interest. Additionally, if the market price of the Company’s common stock falls below $0.01, the principal shall increase by $25,000. The note is convertible at a variable conversion rate of 60% of the lowest closing price during 20 days on which at least 100 shares of common stock were traded prior to and including the conversion date, to be adjusted if in default. The discount increases by 15% discount if there is a DTC “chill” in effect, the closing price falls below $0.095, the Company ceases to be a reporting company pursuant to the 1934 Act, or the note cannot be converted into free trading shares after 181 days from the issuance date. The discount also increases by 10% if the Company’s common shares are not deliverable via DWAC system. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On July 31, 2019, the Company entered into a convertible note with Auctus Fund, LLC for the principal amount of $200,000, convertible into shares of common stock of the Company, which matures on April 30, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On August 23, 2019, the Company entered into a convertible note with Black Ice Advisors, LLC for the principal amount of $110,000, convertible into shares of common stock of the Company, which matures on August 23, 2020. The note has an OID of $10,000, for a purchase price of $100,000. The note bears interest at 10%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price which shall equal the lesser of: (i) $1.00; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On August 27, 2019, the Company entered into a convertible note with LG Capital Funding, LLC for the principal amount of $82,500, convertible into shares of common stock of the Company, which matures on August 27, 2020. The note has an OID of $7,500, for a purchase price of $75,000. The note bears interest at 10%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price which shall equal the lesser of: (i) $1.00; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On September 3, 2019, the Company entered into a convertible note with Armada Investment Fund for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a net lossfailure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $4,528,126 offset$0.40 or 65% multiplied by total non-cash compensation chargesthe lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of $3,214,580,the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a loss on debtprice lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of $442,697, $1,896the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in depreciation expense,effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
On September 3, 2019, the Company entered into a convertible note with BHP Capital NY, Inc. for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in accounts receivableeffect, the Company may redeem the note at amounts ranging from 115% to 145% of $22,632, an increase in other assetsthe principal and accrued interest balance, based on the redemption date’s passage of $25,000, a decrease in prepaid expensestime ranging from the date of $17,518, a decrease in accounts payableissuance of $148,019 and a decrease in accrued liabilities of $2,274.the debenture.
We used $902,428On September 3, 2019, the Company entered into a convertible note with Jefferson Street Capital, LLC for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in ourthe note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
On September 13, 2019, the Company entered into a convertible note with Granite Global Value Investments (“Grantite Global”) for the principal amount of $395,000, convertible into shares of common stock of the Company, which matures on April 21, 2020. The note has an OID of $39,500 for a purchase price of $335,500, which is to be paid in two tranches of $167,750 each. The first tranche was funded on September 19, 2019, and the second tranche is to be funded nine months after the funding of the first tranche. The note bears interest at 12%, which increases to 24% upon an event of default. Additionally, in the event of a default, for numerous events as set forth in the agreement, the outstanding principal shall increase by 50%. The note is convertible at the lesser of: (i) $0.40; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The discount will be increased by 12% for various occurrences as set forth in the agreement, including if the Company is not DTC eligible or experiences a DTC “chill”, if the conversion price falls below $0.01, or if the Company is delisted or delinquent in their filings with the SEC. Or the holder has the option to increase the principal by $5,000 for each occurrence in place of increasing the discount to the conversion price. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at 140% of the principal and accrued interest balance.
In connection with the Granit Global note, the Company granted a number of warrants equal to $395,000 divided by the market price which is defined as the conversion factor (60%) of the lowest closing bid price over the last 20 days to date of issuance at inception, and to exercise date when the warrants are exercised, exercisable at $0.12, with a five year term. The exercise price is adjustable upon any future dilutive issuance. The Company estimated the fair value of the warrants, which were calculated as 5,486,111 warrants at issuance, at $734,000.
On September 16, 2019, the Company entered into a convertible note with Auctus Fund, LLC for the principal amount of $200,000, convertible into shares of common stock of the Company, which matures on September 16, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On September 24, 2019, the Company entered into a convertible note with Adar Alef, LLC for the principal amount of $149,453, convertible into shares of common stock of the Company, which matures on September 24, 2020. The note has an OID of $13,587, for a purchase price of $135,866. The note bears interest at 8%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price equal to 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 130% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
Going Concern
The accompanying audited consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has not established sufficient revenue to cover its operating activities duringcosts, and as such, has incurred an operating loss since inception. For the nine months ended September 30, 2016, which was due to2019, the Company had a net loss of $2,453,375 offset by depreciation expenseapproximately $17,021,000. At September 30, 2019, the Company had an accumulated deficit of $103,approximately $35,166,000 and a lossworking capital deficit of approximately $6,782,000. These factors raise substantial doubt about the Company’s ability to continue as a going concern, within one year from the issuance date of this filing. The Company’s ability to continue as a going concern is dependent on extinguishment ofits ability to raise the required additional capital or debt of $9,003, non-cash compensation charges of $1,508,133, an increase in accounts payable of $31,230, an increase in accrued liabilities of $7,094financing to meet short and an increase in prepaid expenses of $4,616.
We financed our negative cash flow from operations duringlong-term operating requirements. During the nine months ended September 30, 2017 through2019, the Company received net cash proceeds of approximately $3,600,000 from the issuance of common stock of $952,000 and debt borrowings of $150,000. We financed our negative cash flow from operations during the nine-month period endednew convertible debentures. Subsequent to September 30, 2016 through2019, the Company received approximately $429,000 in net cash proceeds from the issuance of common stocknew convertible debentures. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of $804,987 reduced by paymentsprospective business endeavors or opportunities, which could significantly and materially restrict our operations. The Company continues to pursue external financing alternatives to improve its working capital position. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of $8,689 related to principal payments on debt.
We had investing activitiesassets or the amounts and classification of $11,687 during the nine months ended September 30, 2017 related to the purchase of equipment as compared to $2,720 during the same period in the prior year.
Availability of Additional Capital
Notwithstanding our success in raising over $952,000liabilities that may result from the private salepossible inability of equity securities during the nine-month period ended September 30, 2017, there can be no assurance that we willCompany to continue to be successful in raising additional equity capital to fund our operations. If we determine that it is necessary to raise additional funds, we may choose to do so through public or private equity or debt financing, a bank line of credit, or other arrangements. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our plan of operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.
Any additional equity financing may be dilutive to our stockholders, new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock. Debt or equity financing may subject us to restrictive covenants and significant interest costs.
Capital Expenditure Plan During the Next Twelve MonthsFuture Financing
DuringWe will require additional funds to implement our growth strategy for our business. Subsequent to quarter end, we have raised approximately an additional $429,000, net of OID, from convertible debentures. Additionally, on December 10, 2018, we entered into a signed commitment with PT. Investa Wahana Group, Indonesia to invest $200 million, subscribing for $100 million in shares of the nine-month period ended September 30, 2017,Company’s Series F Convertible Preferred Stock and an addition $100 million in shares of the Company’s Series G Convertible Preferred Stock. To date, we raised $952,000have not received the subscription proceeds, but we understand that the Wahana Group is still pursuing its efforts to monetize their subscription agreements utilizing collateral to support letters of credit.
Notwithstanding the foregoing, on October 23, 2019, the Company filed a Form 8-K reporting that it has successfully concluded negotiations with China Construction Bank Indonesia (CCBI), which will provide the Company with a $25 million, non-recourse credit facility, based upon the HSBC bank guarantee provided by Gabriel Capital Ltd. (“Gabriel”). Gabriel is a privately-owned, Indonesian family- controlled entity, based in equity capital and $150,000 through borrowings on debt. We may beSingapore. The final HSBC bank guarantee for $25 million, which we understand has already been approved by the bank’s credit committee, is expected to require upbe received in KinerjaPay’s account with CCBI during November. As structured, the Company will be able to draw down the guaranteed net proceeds of $22.5 million in three monthly tranches of $7.5 million. Upon each draw, the Company will issue Gabriel a proportionate number of shares of Series F and G Preferred Stock under Gabriel’s executed Reg S Subscription Agreements, based upon the net subscription proceeds. Gabriel intends to continue delivering such guarantees until the full $200 million is received under these Subscription Agreements.
In effect, Gabriel is making an equity investment in the Company’s Series F and Series G Preferred Stock, which is being issued in consideration for Gabriel’s guarantee. The Series F Preferred Stock is convertible into shares of Common Stock at an average of $1.80 per share. The Series G Preferred Stock provides that the Company has the sole right to cause the conversion of the shares of Series G Preferred Stock into Common Stock at $1.80 per share provided that the shares of the Company’s common stock are trading at $3.50 or higher for a period of 20 days commencing six months after the dates of issuance of the Series G Preferred Stock.
However, not including funds needed for capital expenditures or to pay down existing debt and trade payables, we anticipate that we will need to raise an additional $1.6 million in capital during$3,000,000 to cover all of our operational expenses over the next 12 months to fully implement our business plan and fund our operations. Our plan is to utilizemonths. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity capital and debt that we raise, together with anticipated cash flow from operations, to fund a very significant investment in sales and marketing, concentration principally on online advertising and incentivizing existing customers for the introduction of new customers, among other strategies. However, there can be no assurance that: (i) we will continue to be successful in raising equity capital in sufficient amounts and/or at terms and conditions satisfactory to the Company; or (ii) we will generate sufficient revenues from operations, to fulfill our plan of operations. Our revenues are expected to come from the saleownership of our portal services. As a result, we will continue to incur operating losses unless and until we are able to generate sufficient cash flow to meet our operating expenses and fund our planned sales and market efforts.shares. There can be no assurance that the marketadditional financing will adopt our portalbe available to us when needed or, if available, that we will generate sufficient cash flow to fund our enhanced sales and marketing plan. In the event thatsuch financing can be obtained on commercially reasonable terms. If we are not able to successfully: (i) raise equity capital and/obtain the additional necessary financing on a timely basis, or debt financing; or (ii) market and significantly increase the number of portal users andif we are unable to generate significant revenues from such users,operations, we will not be able to meet our other obligations as they become due, and we will be forced to scale down or perhaps even cease our operations.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 as filed with the SEC on April 24, 2019. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations will be materially and adversely affected and we will either have to delay or curtail our plan for funding our sales and marketing efforts.operations.
Fair Value Measurement
The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are:
| ● | Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access. |
| ● | Level 2: Inputs to the valuation methodology include: |
| Quoted prices for similar assets or liabilities in active markets; | ||
| - | Quoted prices for identical or similar assets or liabilities in inactive markets; | |
| - | Inputs other than quoted prices that are observable for the asset or liability; | |
| - | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
| ● | Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Revenue Recognition
In accordance with ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the year ended December 31, 2018.
Income Taxes
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
In addition, our management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing our income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes.
Going Concern ConsiderationRecently Issued Accounting Standards
Our registered independent auditorsIn February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which supersedes the existing guidance for lease accounting, “Leases (Topic 840)”. ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. We expect to apply the ASU without adjusting the comparative periods and, if applicable, recognizing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted ASC 842 on January 1, 2019, and the adoption did not have an impact on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” that expands the scope of ASC Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of ASC Topic 718 to nonemployee awards except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. We adopted ASU 2018-07 on January 1, 2019, and the adoption did not have an opinionimpact on our consolidated financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial statements which includes a statement describing our going concern status. This meanscondition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capitalmaterial to pay our bills and meet our other financial obligations. This is because we have not generated any revenues and no revenues are anticipated until we begin marketing the product. Accordingly, we must raise capital from sources other than the actual sale of the product. We must raise capital to implement our project and stay in business.stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSUREDISCLOSURES ABOUT MARKET RISK.Back to Table of ContentsRISK
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.PROCEDURESBack to Table of Contents
Evaluation of disclosure controlsDisclosure Controls and procedures.Procedures
As of September 30, 2017, the Company’s chief executive officer and chief financial officer conducted an evaluation regarding the effectiveness of the Company’sWe maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) orand 15d-15(e) under the Securities Exchange Act. BasedAct of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the evaluationlikelihood of thesefuture events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as provided under the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013),end of the period covered by this report. Based upon that evaluation and subject to the foregoing, our chiefprincipal executive officer and chiefprincipal financial officer concluded that, our disclosure controls and procedures were ineffective as September 30, 2017. Management has identified corrective actionsnot effective due to address the weaknesses and plans to implement them duringmaterial weakness(es) in internal control over financial reporting disclosed in our annual report on Form 10-K for the fourth quarter of 2017.fiscal year ended December 31, 2018.
Changes in Internal Control Overover Financial Reporting
There werehave been no changes in the Company’sour internal control over financial reporting during the period covered by this report, which were identified(as defined in connection with management’s evaluation required by paragraph (d) of Rules 13a-15Rule 13a-15(f) and 15d-1515d-15(f) under the Exchange Act,Act) during the fiscal quarter ended September 30, 2019 that have materially affected, or that are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
ITEM 1. LEGAL PROCEEDINGS.Back to Table of ContentsPROCEEDINGS
ThereWe are nonot involved in any pending legal proceedings to which the Company is a party orthat we anticipate would result in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.effect on our business or operations.
ITEM 1A. RISK FACTORS.FACTORSBack to Table of Contents
A smaller reportingAn investment in our common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Annual Report”), as filed with the SEC on April 24, 2019, in addition to other information contained in those documents and reports that we have filed with the SEC pursuant to the Securities Act and the Exchange Act since the date of the filing of the Annual Report, including, without limitation, this Quarterly Report on Form 10-Q, in evaluating our company as defined by Item 10and its business before purchasing shares of Regulation S-K, is not requiredour common stock. Our business, operating results and financial condition could be adversely affected due to provide the information required by this item.any of those risks.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES UNDAND USE OF PROCEEDS.Back to Table of ContentsPROCEEDS
In July 2016, we issued 100,000 shares of our common stockThe following paragraphs set forth certain information with respect to an unrelated party as payment for a service agreement. The shares were valued at the closing price as of the date of the agreement ($0.77) and offsetall securities sold by $1,000 in cash received for the shares. This resulted in full recognition of the excess of fair value over cash received of $76,000 as consulting services expense.
Share based payment transactions were accounted for in accordance with the requirements of ASC 505-50 Equity Based Payments to Non Employees. Paragraph 505-50-30-6 establishes that share-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company measured share-based payment transactions at the fair value of the shares issued at date of grant, the Company believes that the value of the shares is more reliably measurable.
Duringduring the three months ended September 30, 2017,2019 without registration under the Securities Act:
Convertible Note Agreements
On June 28, 2019, the Company authorizedentered into a convertible note with JSJ Investments, Inc. which was funded on July 2, 2019, for the issuanceprincipal amount of 181,818$118,000, convertible into shares of common stock valuedof the Company, which matures on July 11, 2019. The convertible note had an OID of $5,000, for a purchase price of $113,000. The note bears interest at $1.10 per share. As12%, which increases to 18% upon an event of September 30, 2017 nonedefault. The note is convertible commencing 180 days after issuance of these shares have beenthe note (or upon an event of Default), with a variable conversion rate at a 40% discount to the lowest closing price during the previous twenty days to the conversion date. The conversion rate adjusts if there are common stock equivalents issued and outstanding even thoughin which the aggregate per share price is below the original conversion price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company received $50,000 with respect to these shares. Asis not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt of a result,conversion request. In an event of default, as defined in the note, the “default amount” shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by (B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded at any time between the issuance date and the date of the event of default. Per the agreement, the Company recorded $50,000 in stock payable asis required at all times to have authorized and reserved eight times the number of September 30, 2017.
shares that is actually issuable upon full conversion of the note. During the three months ended September 30, 2017,first 180 days the convertible redeemable note is in effect, the Company authorizedmay redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of 80,000the debenture, and at 150% after 180 days.
On July 8, 2019, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with EMA Financial LLC, which matures on April 8, 2020. The holder may extend the maturity date up to one year, by written notice at least five days before the original maturity date. The convertible note had an OID of $9,000, for a purchase price of $141,000. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%, and the default sum due becomes 200% of the principal outstanding and accrued interest. Additionally, if the market price of the Company’s common stock falls below $0.01, the principal shall increase by $25,000. The note is convertible at a variable conversion rate of 60% of the lowest closing price during 20 days on which at least 100 shares of common stock were traded prior to and including the conversion date, to be adjusted if in default. The discount increases by 15% discount if there is a DTC “chill” in effect, the closing price falls below $0.095, the Company ceases to be a reporting company pursuant to the 1934 Act, or the note cannot be converted into free trading shares after 181 days from the issuance date. The discount also increases by 10% if the Company’s common shares are not deliverable via DWAC system. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On July 31, 2019, the Company entered into a convertible note with Auctus Fund, LLC for the principal amount of $200,000, convertible into shares of common stock of the Company, which matures on April 30, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On August 23, 2019, the Company entered into a convertible note with Black Ice Advisors, LLC for the principal amount of $110,000, convertible into shares of common stock of the Company, which matures on August 23, 2020. The note has an OID of $10,000, for a purchase price of $100,000. The note bears interest at 10%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price which shall equal the lesser of: (i) $1.00; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On August 27, 2019, the Company entered into a convertible note with LG Capital Funding, LLC for the principal amount of $82,500, convertible into shares of common stock of the Company, which matures on August 27, 2020. The note has an OID of $7,500, for a purchase price of $75,000. The note bears interest at 10%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price which shall equal the lesser of: (i) $1.00; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On September 3, 2019, the Company entered into a convertible note with Armada Investment Fund for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
On September 3, 2019, the Company entered into a convertible note with BHP Capital NY, Inc. for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
On September 3, 2019, the Company entered into a convertible note with Jefferson Street Capital, LLC for the principal amount of $82,500 with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by $15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
On September 13, 2019, the Company entered into a convertible note with Granite Global Value Investments (“Grantite Global”) for the principal amount of $395,000, convertible into shares of common stock of the Company, which matures on April 21, 2020. The note has an OID of $39,500 for a purchase price of $335,500, which is to be paid in two tranches of $167,750 each. The first tranche was funded on September 19, 2019, and the second tranche is to be funded nine months after the funding of the first tranche. The note bears interest at 12%, which increases to 24% upon an event of default. Additionally, in the event of a default, for numerous events as set forth in the agreement, the outstanding principal shall increase by 50%. The note is convertible at the lesser of: (i) $0.40; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. The discount will be increased by 12% for various occurrences as set forth in the agreement, including if the Company is not DTC eligible or experiences a DTC “chill”, if the conversion price falls below $0.01, or if the Company is delisted or delinquent in their filings with the SEC. Or the holder has the option to increase the principal by $5,000 for each occurrence in place of increasing the discount to the conversion price. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at 140% of the principal and accrued interest balance.
In connection with the Granit Global note, the Company granted a number of warrants equal to $395,000 divided by the market price which is defined as the conversion factor (60%) of the lowest closing bid price over the last 20 days to date of issuance at inception, and to exercise date when the warrants are exercised, exercisable at $0.12, with a five year term. The exercise price is adjustable upon any future dilutive issuance. The Company estimated the fair value of the warrants, which were calculated as 5,486,111 warrants at issuance, at $734,000.
On September 16, 2019, the Company entered into a convertible note with Auctus Fund, LLC for the principal amount of $200,000, convertible into shares of common stock of the Company, which matures on September 16, 2020. In an event of default as set forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
On September 24, 2019, the Company entered into a convertible note with Adar Alef, LLC for the principal amount of $149,453, convertible into shares of common stock of the Company, which matures on September 24, 2020. The note has an OID of $13,587, for a purchase price of $135,866. The note bears interest at 8%, which increases to 24% upon an event of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price equal to 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 130% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
Issuance of Shares of Common Stock for Services
On July 2, 2019, the Company issued 950,000 shares to consultants for services, with a fair value of $315,000, based on the fair value of the Company’s common stock on the date of the consulting agreements.
On May 23, 2019, the Company issued 150,000 fully vested common shares to a third party for consulting services for a 12 month term, in accordance with the terms of a consulting agreement dated April 17, 2019. The shares were valued at $1.60 per share to Ace Legends Pte Ltd. for services provided. As$63,000 based upon the market price of September 30, 2017 nonethe shares of these$0.42 on the date of issuance. An additional 100,000 shares have beenwere issued and outstanding. As a result,on June 7, 2019, valued at $24,000, based upon the Company recorded $128,000 in stock payable asmarket price of September 30, 2017the shares of $0.24 on the date of issuance. An additional 200,000 shares were issued on August 19, 2019, valued at $34,000, based upon the market price of the shares of $0.17 on the date of issuance.
The above transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering. The Company believes thatrelied upon the issuances and saleexemption from the registration requirements of the restricted shares were exempt from registration pursuant toSecurities Act of 1933, as amended (the “Act”) by virtue of Section 4(2) of4(a)(2) thereof and/or Regulation D promulgated by the Act as privately negotiated, isolated, non-recurring transactions not involving any public solicitation. The recipients in each case represented their intention to acquireSEC under the securities for investment only and not with a view to the distribution thereof. Appropriate restrictive legends are affixed to the stock certificates issued in such transactions. All recipients of restricted shares either received adequate information about the Company or had access, through employment, relation and/or business relationships with the Company to such information.Act.
ITEM 3. DEFAULTDEFAULTS UPON SENIOR SECURITIES.SECURITIESBack to Table of Contents
None.
ITEMitem 4. MINE SAFETY DISCLOSURE.Back to Table of Contentsmine safety disclosures
None.Not applicable.
ITEM 5. OTHER INFORMATION.INFORMATIONBack to Table of Contents
None.
| 70 |
ITEM 6. EXHIBITS.EXHIBITSBack to Table of Contents
EXHIBIT INDEX
* Filed herewith.
** Furnished herewith.
In accordance with Section 13 or 15(d)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.
| /s/ Edwin Witarsa Ng | ||||
| Edwin Witarsa Ng | ||||
| Chief Executive Officer and Director (Principal Executive Officer) | ||||
| By: | /s/ Windy Johan | |||
| Windy Johan | ||||
| Chief Financial Officer (Principal Financial Officer and Principal | ||||
| Accounting Officer) | ||||
| Date: November 14, 2019 | ||||