Convertible Note Payable | NOTE 8 – CONVERTIBLE NOTE PAYABLE Convertible notes payable are comprised of the following: 2018 2017 Convertible note payable-DTTO- due April 30, 2018 $ — $ 111,111 Convertible note payable-John Fife – last due October 27, 2018 150,959 — Convertible notes payable-St George-last due June 30, 2019 1,877,889 1,688,920 Total 2,028,848 1,800,031 Less debt discounts (896,180 ) (1,232,620 ) Net 1,132,668 567,411 Less current portion (1,132,668 ) (394,555 ) Long term portion $ — $ 172,856 Convertible note payable-DTTO Effective March 30, 2017, the Company issued a 6.5% convertible promissory note for an aggregate of $2,777,778 due April 30, 2018 for consideration of $2,500,000, after original interest discount (“OID) of $277,778; unsecured. On June 30, 2017, the Company had received net proceeds of $99,965 under the note. Gross face amount was $111,111, after additions for pro rate portion of OID and other related costs. The note was convertible, at any time, into shares of the Company’s common stock at $0.03 per share unless on the day prior to the lender’s request to convert, the closing price is less than $0.05 per share, then the conversion price shall be 60% of the average three lowest days closing prices for 20 trading days prior to the request to convert. At the funding date of the note, the Company determined the aggregate fair value of $221,406 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 470.85%, (3) weighted average risk-free interest rate of 1.02%, (4) expected life of 1.08 years, and (5) estimated fair value of the Company's common stock from $0.0604 per share. The determined fair value of the debt derivatives of $221,406 was charged as a debt discount up to the net proceeds of the note with the remainder of $121,441 charged to operations as non-cash interest expense. Convertible note payable-Tangiers Global LLC On July 31, 2017, the Company issued a 10% fixed convertible promissory note for an aggregate of $250,000 due February 28, 2018. The Company had received net proceeds of $76,500 under the note. Gross face amount was $85,000, after additions for pro rate portion of OID and other related costs. The note is convertible, at any time, into shares of the Company’s common stock at $0.0125 per share. As an investment incentive, the Company issued 10,000,000 5year cashless warrants, exercisable at $.025. At the funding date of the note, the Company determined the aggregate fair value of $374,100 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 448.42% to 448.47%, (3) weighted average risk-free interest rate of 1.13% to 1.15%, (4) expected life of 0.58 to .59 years, and (5) estimated fair value of the Company's common stock from $0.0375 to $0.0376 per share. The determined fair value of the debt derivatives of $374,100 was charged as a debt discount up to the net proceeds of the note with the remainder of $234,100 charged to operations as non-cash interest expense. Additionally, date of issuance, the Company determined the aggregate fair value of $375,000 of the issued warrant. The fair value of the warrant was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 448.47%, (3) weighted average risk-free interest rate of 1.84%, (4) expected life of 5.00 years, and (5) estimated fair value of the Company's common stock from $0.0375 per share. The determined fair value of the issued warrant of $375,000 was charged as an inducement cost and charged to operations as non-cash interest expense. On October 10, 2017, the Company entered into a “Settlement and Mutual Release of All Claims Agreement” (“Agreement”) with Tangiers Global, LLC (“Tangiers”) terminating the Company’s previously announced material definitive agreement with Tangiers reported on Form 8-K on July 31, 2017. The Agreement terminated an Investment Agreement between the Company and Tangiers, wherein Tangiers previously agreed to invest up to five million dollars ($5,000,000) to purchase the Company’s Common Stock, par value $0.001 per share, based upon an exemption from registration provided under Section 4(a)(2) of the 1933 Securities Act, and Section 506 of Regulation D promulgated thereunder. Further, the Agreement, terminated a Registration Rights Agreement entered into between the Company and Tangiers, which was an inducement to Tangiers to execute and deliver the Investment Agreement, whereby the Company agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, and applicable state securities laws, with respect to the shares of Common Stock issuable for Tangiers’s investment pursuant to the Investment Agreement. Further, the Agreement settled two outstanding fixed convertible promissory notes the Company executed in favor of Tangiers: one in the amount of two hundred and fifty thousand dollars ($250,000.00), of which Tangiers had advanced eighty-five thousand dollars ($85,000) to the Company, with total principal and interest due in the amount of ninety-three thousand, five hundred dollars ($93,500); and one in the amount of fifty thousand dollars ($50,000), with total principal and interest due in the amount of fifty-five thousand dollars ($55,000). In addition, previously issued warrants to acquire 10,000,000 shares of the Company’s common stock were returned and canceled. The Agreement further provided that in order to affect a prepayment of the fixed convertible promissory note in the amount of two hundred and fifty thousand dollars ($250,000), the Company agreed to pay a prepayment penalty of eighteen thousand, five hundred dollars ($18,500), resulting in a total payable on this note in the amount of one hundred and twelve thousand, two hundred dollars ($112,200). The Company agreed to settle the notes by paying Tangiers one hundred and sixty-seven thousand, two hundred dollars ($167,200) and issuing Tangiers three million shares of the Company’s restricted common stock. The Company and Tangiers agreed to mutual releases of all claims. On October 10, 2017, the Company issued 3,000,000 shares of common stock and paid $167,200 in full settlement of the outstanding Tangiers notes recognizing a gain on settlement of debt of $342,399. The gain was determined by the fair value of the common shares obligated at the time of settlement of 11,200,000 less the 3,000,000 issued to settle, net with cash paid plus the fair value of the canceled liability warrants. Convertible notes payable-St George Investments Effective July 3, 2017, the Company issued a secured convertible promissory note in aggregate of $752,500 to St George Investments LLC (“St George”). The promissory note bore interest at 10% per annum, was due upon maturity sixteen months after the purchase price date and included an original issue discount (“OID”) of $67,500. In addition, the Company agreed to pay $10,000 for legal, accounting and other transaction costs of the lender. The promissory note was funded in five tranches of $422,500; $27,500; $167,200 and $107,800; net of OID and transaction costs resulting in receiving aggregate net proceeds of $675,000 under this note. As an investment incentive, the Company issued 33,653,846, 5-year warrants, exercisable at $.04 with certain reset provisions. During the year ended December 31, 2018, $752,500 of principal and $45,902 of accrued interest along with $1,624,933 of derivative liabilities valued as of the respective conversion dates were converted into 53,528,363 shares of common stock. Unamortized discounts of $696,385 were charged to interest expense at the time of conversion. Forbearance agreement On August 4, 2017, the Company entered into a forbearance agreement with St. George Investments LLC, due to the Company’s alleged breached of certain default provisions of the secured promissory note entered into with St. George on July 3, 2017. The alleged breach occurred due to the Company entering into an investment agreement with Tangiers on July 15, 2017 and issued a fixed convertible promissory note to Tangiers. Due to the alleged breach, St George has the right, among other things, to accelerate the maturity date of the note, increase interest from 10% to 22% and cause the balance of the outstanding promissory note to increase due to the application of the default provisions. St. George agreed to refrain and forbear from bringing any action to collect under the promissory note, including the interest rate increase and balance increase, with respect to the alleged default. As consideration of the forbearance, the Company agreed to accelerate the installment conversions from 1 year to 6 months and to add an additional OID of $112,875, which will be considered fully earned as of August 4, 2017, nonrefundable and to be included in the first tranche. The Company and St George ratified the outstanding balance, after the added OID and accrued interest, of $868,936 as of August 4, 2017. Effective November 1, 2017, the Company issued a secured convertible promissory note in aggregate of $601,420 to St George Investments LLC (“St George”). The promissory note is bears interest at 10% per annum, is due upon maturity sixteen months after purchase price date and includes an original issue discount (“OID”) of $54,220. In addition, the Company agreed to pay $5,000 for legal, accounting and other transaction costs of the lender. The promissory note was funded on November 11, 2017 of $542,200; net of OID and transaction costs. During the year ended December 31, 2018, $183,531 of principal and $66,470 of accrued interest along with $132,708 of derivative liabilities valued as of the respective conversion dates were converted into 27,839,644 shares of common stock. Effective December 20, 2017, the Company issued a secured convertible promissory note in aggregate of $1,655,000 to St George Investments LLC (“St George”). The promissory note is bears interest at 10% per annum, is due upon maturity sixteen months after purchase price date and includes an original issue discount (“OID”) of $155,000. In addition, the Company agreed to pay $5,000 for legal, accounting and other transaction costs of the lender. The promissory note was funded in nine tranches of $300,000; $200,000; $200,000; $400,000; $75,000; $150,000; $85,000; $120,000 and $70,000, resulting in receiving aggregate net proceeds of $1,500,000 under this note.. The Company had received aggregate net proceeds of $300,000 during the year ended December 31, 2017 with the remaining tranches received during the year ended December 31, 2018. As an investment incentive, the Company issued 66,000,000 5 year warrants, exercisable at $.04 with certain reset provisions. The promissory notes are convertible, at any time at the lender’s option, at $0.04. However, in the event the Company’s market capitalization (as defined) falls below $30,000,000, the conversion rate is 60% of the 3 lowest closing trade prices due the 20 trading days immediately preceding date of conversion, subject to additional adjustments, as defined. In addition, the promissory note includes certain anti-dilution provisions should the Company subsequently issue any common stock or equivalents at an effective price less than the lender conversion price. The Company has a right to prepayment of the note, subject to a 20% prepayment premium and is secured by a trust deed of certain assets of the Company. At the funding dates of the notes, the Company determined the aggregate fair value of $2,842,117 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 423.86 to 440.98%, (3) weighted average risk-free interest rate of 1.57% to 2.35%, (4) expected life of .253 to .833 years, and (5) estimated fair value of the Company's common stock from $0.0275 to $0.0441 per share. The determined fair value of the debt derivatives of $2,842,117 was charged as a debt discount up to the net proceeds of the note with the remainder of $809 and $2,412,545 charged to operations as non-cash interest expense. Additionally, date of issuance, the Company determined the aggregate fair value of $3,032,900 of the issued warrants. The fair value of the warrants were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 436.55% to 448.94%, (3) weighted average risk-free interest rate of 1.93% to 2.15%, (4) expected life of 5.00 years, and (5) estimated fair value of the Company's common stock from $0.0205 to $0.0355 per share. The determined fair value of the issued warrants was allocated between the debt instrument and warrants based on their relative fair values. The portion of the proceeds allocated to the warrants has been added to the debt discount, included in additional paid in capital and amortized over the life of the debt. During the year ended December 31, 2018, $855,000 of principal along with $1,223,312 of derivative liabilities valued as of the respective conversion dates were converted into 51,952,093 shares of common stock. Unamortized discounts of $520,443 were charged to interest expense at the time of conversion. On November 5, 2018, $250,000 of principal and accrued interest was assigned to John Fife as an individual with all the terms and conditions of the original note issued to St George. The Company determined the aggregate fair value of the embedded derivatives at $260,233. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 418.01%, (3) weighted average risk-free interest rate of 2.20%, (4) expected life of .083 years, and (5) estimated fair value of the Company's common stock of $0.0204 per share. The determined fair value of the debt derivatives was charged as a debt discount up to the net proceeds of the note with the remaining $10,233 charged to operations as interest expense during the year ended December 31, 2018. On November 20, 2018, $99,041 of principal and $959 of accrued interest along with $125,625 of derivative liabilities valued as of the respective conversion date were converted into 8,576,329 shares of common stock. Unamortized discounts of $99,041 were charged to interest expense at the time of conversion. Effective August 28, 2018, the Company issued a secured convertible promissory note in aggregate of $1,105,000 to St George Investments LLC (“St George”). The promissory note is bears interest at 10% per annum, is due upon maturity ten months after purchase price date and includes an original issue discount (“OID”) of $100,000. In addition, the Company agreed to pay $5,000 for legal, accounting and other transaction costs of the lender. During the year ended December 31, 2018, the promissory note was funded in seven tranches of $60,000; $71,000; $15,000; $75,000; $200,000; $200,000; and $200,000, resulting in receiving aggregate net proceeds of $825,000 under this note. As an investment incentive, the Company issued 45,000,000 5 year warrants, exercisable at $.04 with certain reset provisions. The promissory note is convertible, at any time at the lender’s option, at $0.04. However, in the event the Company’s market capitalization (as defined) falls below $30,000,000, the conversion rate is 60% of the 3 lowest closing trade prices due the 20 trading days immediately preceding date of conversion, subject to additional adjustments, as defined. In addition, the promissory note includes certain anti-dilution provisions should the Company subsequently issue any common stock or equivalents at an effective price less than the lender conversion price. The Company has a right to prepayment of the note, subject to a 15% prepayment premium and is secured by a trust deed of certain assets of the Company. Additionally, at the date of issuance, the Company determined the aggregate fair value of $1,588,493 of the issued warrants. The fair value of the warrants were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 422.68%, (3) weighted average risk-free interest rate of 2.75%, (4) expected life of 5.00 years, and (5) estimated fair value of the Company's common stock of $0.0353 per share. The determined fair value of the issued warrants was allocated between the debt instrument and warrants based on their relative fair values. The portion of the proceeds allocated to the warrants has been added to the debt discount, included in additional paid in capital and amortized over the life of the debt. At the funding dates of the notes, the Company determined an aggregate fair value of $1,716,396 of the embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 422.68%, (3) weighted average risk-free interest rate of 2.31%, (4) expected life of.833 years, and (5) estimated fair value of the Company's common stock from $.0353 per share. The determined fair value of the debt derivatives was charged as a debt discount up to the net proceeds of the note with the remaining $1,716,396 charged to operations as interest expense during the year ended December 31, 2018. Summary: The Company has identified the embedded derivatives related to the above described notes and warrants. These embedded derivatives included certain conversion and reset features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the note and to fair value as of each subsequent reporting date. At December 31, 2018, the Company determined the aggregate fair values of $2,256,631 of embedded derivatives. The fair values were determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 112.98% to 113.09%, (3) weighted average risk-free interest rate of 2.44% to 2.56%, (4) expected life of 0.083 to 0.500 years, and (5) estimated fair value of the Company's common stock from $0.0203 per share. For the year ended December 31, 2018, the Company recorded a gain on the change in fair value of derivative liabilities of $1,443,249 and a loss on the change in the fair value of derivative liabilities of $4,329,743 for the year ended December 31, 2017. For the years ended December 31, 2018 and 2017, the Company recorded amortization of debt discounts of $1,146,549 and $1,042,999, respectively, as a charge to interest expense, respectively. |