Convertible Note Payable | NOTE 6 – CONVERTIBLE NOTE PAYABLE Convertible notes payable are comprised of the following: March 31, 2019 December 31, 2018 Convertible note payable-John Fife, last due October 27, 2018 $ — $ 150,959 Convertible notes payable-St George-last due January 24, 2020 2,927,889 1,877,890 Total 2,927,889 2,028,849 Less debt discounts (1,391,618 ) (896,180 ) Net 1,536,271 1,132,669 Less current portion 1,536,271 (1,132,669 ) Long term portion $ — $ — Convertible notes payable-St George Investments Effective November 1, 2017, the Company issued a secured convertible promissory note in aggregate amount of $601,420 to St George Investments LLC (“St George”). The promissory note bears interest at 10% per annum, is due upon maturity sixteen months after the purchase price date and includes an original issue discount (“OID”) of $59,220. The promissory note was funded on November 11, 2017 of $542,200; net of OID and transaction costs. As of March 31, 2019, the Company owed $417,890 on this convertible promissory note. 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 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. 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. During the three months ended March 31, 2019, $220,000 of principal along with $100,336 of derivative liabilities valued as of the respective conversion dates were converted into 31,151,515 shares of common stock. 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. On March 21, 2019, $150,959 of principal and $4,963 of accrued interest along with $160,454 of derivative liabilities valued as of the respective conversion date were converted into 23,667,574 shares of common stock. 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 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 totaling aggregate net proceeds of $825,000. 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. During the three months ended March 31, 2019, an additional $135,000 was funded under this note for net proceeds of $125,000. The aggregate fair value of $1,588,493 of the issued warrants was allocated to this funding based on the funding’s percentage of the $1,105,000 face value. The determined fair value of warrants issued was then 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 date of the eight tranche of this note, the Company determined an aggregate fair value of the embedded derivatives on the total outstanding balance of this note of $1,180,646. 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 112.4%, (3) weighted average risk-free interest rate of 2.54%, (4) expected life of .481 years, and (5) estimated fair value of the Company's common stock from $.018 per share. The determined aggregate fair value of the debt derivatives was adjusted with a $36,343 reduction of interest expense during the three months ending March 31, 2019. Effective January 29, 2019, the Company issued a secured convertible promissory note in aggregate of $2,205,000 to St George Investments LLC (“St George”). The promissory note bears interest at 10% per annum, is due upon maturity ten months after the purchase price date and includes an original issue discount (“OID”) of $200,000. In addition, the Company agreed to pay $5,000 for legal, accounting and other transaction costs of the lender. During the three months ended March 31, 2019, the promissory note was funded in three tranches totaling $555,000 resulting in receiving aggregate net proceeds of $500,000 under this note. The net proceeds received consisted of $393,780 in cash and $161,220 in payments on behalf of the Company. As an investment incentive, the Company issued 90,000,000 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 the issued warrants at $999,838. 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 109.63%, (3) weighted average risk-free interest rate of 2.55%, (4) expected life of 5.00 years, and (5) estimated fair value of the Company's common stock of $0.0162 per share. The aggregate fair value of the issued warrants is allocated to each funding based on the funding’s percentage of the aggregate warrant face value. The determined fair value of warrants issued was then 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 three months ended March 31, 2019, the portion of proceeds allocated to warrants totaled $167,225. At the funding dates of the notes, the Company determined an aggregate fair value of $44,898 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 107.91% to 109.79%, (3) weighted average risk-free interest rate of 2.31% to 2.50%, (4) expected life of .750 to .836 years, and (5) estimated fair value of the Company's common stock from $.0132 to $.0163 per share. The determined fair value of the debt derivatives was charged as a debt discount up to the net proceeds of the note. Effective March 25, 2019, the Company issued a secured convertible promissory note in aggregate of $580,000 to St George Investments LLC (“St George”). The promissory note bears interest at 10% per annum, is due upon maturity ten months after the purchase price date and includes an original issue discount (“OID”) of $75,000. In addition, the Company agreed to pay $5,000 for legal, accounting and other transaction costs of the lender. During the three months ended March 31, 2019, the promissory note was funded in the amount of $580,000 resulting in receiving aggregate net proceeds of $500,000 under this note. As an investment incentive, the Company issued 22,500,000 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 the issued warrants at $258,701. 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 108.20%, (3) weighted average risk-free interest rate of 2.21%, (4) expected life of 5.00 years, and (5) estimated fair value of the Company's common stock of $0.0169 per share. The determined fair value of warrants issued 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 three months ended March 31, 2019, the portion of proceeds allocated to warrants totaled $170,489. At the funding dates of the notes, the Company determined an aggregate fair value of $233,477 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 108.85%, (3) weighted average risk-free interest rate of 2.48%, (4) expected life of .836 years, and (5) estimated fair value of the Company's common stock from $.0169 per share. The determined fair value of the debt derivatives was charged as a debt discount up to the net proceeds of the note. 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 March 31, 2019, the Company determined the aggregate fair values of $4,961,666 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 107.54%, (3) weighted average risk-free interest rate of 2.40%, (4) expected life of 0.250 to .817 years, and (5) estimated fair value of the Company's common stock from $0.0151 per share. For the three months ended March 31, 2019, the Company recorded a loss on change in fair value of derivative liabilities of $2,687,449 and recorded amortization of debt discounts of $463,282 as a charge to interest expense, respectively. |