| Convertible Note Payable | 7. CONVERTIBLE NOTE PAYABLE The following table summarizes the outstanding
balance of convertible notes payable, interest and conversion rates as of September 30, 2020 and December 31, 2019.
September 30, 2020 December 31, 2019
Convertible note payable to an investor with interest at 12% per annum, convertible at any time into shares of common stock at $0.10 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2021. The note is secured by substantially all the assets of the Company. $ 600,000 $ 500,000
Convertible note payable to an investor with interest at 5% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable annually with the balance of principal and interest due on maturity on March 1, 2021. The note is secured by substantially all the assets of the Company. 55,000 55,000
Convertible note payable to an investor with interest at 12% per annum. $10,000 of the principal is currently convertible into shares of common stock at $0.01 per share, with remaining principal and interest convertible into shares of common stock at $0.10 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2021. The note is secured by substantially all the assets of the Company. 60,000 50,000
Convertible note payable to an investor with interest at 12% per annum. $10,000 of the principal is currently convertible into shares of common stock at $0.01 per share, with remaining principal and interest convertible into shares of common stock at $0.10 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on March 1, 2021. The note is secured by substantially all the assets of the Company. 60,000 50,000
Convertible note payable to a related party with interest at 12% per annum, convertible at any time into shares of common stock at $0.00084 per share. Interest is payable quarterly with the balance of principal and interest due on maturity on August 2, 2021. The note is secured by substantially all the assets of the Company. 125,000 125,000
Convertible note payable to an investor with interest at 10% per annum, convertible after 180 days from issuance into shares of common stock at $0.20 per share, or 60% of the lowest market price in the preceding 25 days upon an event of default. Principal and interest due on maturity on March 6, 2020. – 35,000
Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.01 per share. Principal and interest due on maturity on April 29, 2021. 100,000 –
Convertible note payable to an investor with interest at 10% per annum, convertible at any time into shares of common stock at $0.0099 per share. Note was issued as payment for future fees to be incurred under the related Equity Financing Agreement. Principal and interest due on maturity on April 29, 2021. 75,000 –
1,075,000 815,000
Less unamortized discount (51,576 ) (108,492 )
Net balance 1,023,424 706,508
Less current portion (1,023,424 ) (706,508 )
$ – $ – On January 18, 2018, the Board of Directors
of the Company approved a non-public offering of up to $1,000,000 aggregate principal amount of its 12% Senior Secured Convertible
Notes. The notes are convertible, in whole or in part, into shares of the Company’s common stock, at any time at a rate of
$0.65 per share with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election. The
notes bear interest at a rate of 12% per annum and interest payments will be made on a quarterly basis. The notes mature January
15, 2020. The notes are governed by a Securities Purchase
Agreement and are secured by all the assets of the Company pursuant to a Security and Pledge Agreement. In addition to the issuance
of the notes in the offering, the Company’s Board of Directors approved, as part of the offering, the issuance of warrants
to purchase one share of the Company’s common stock for 50% of the number of shares of common stock issuable upon conversion
of each note. Each warrant is immediately exercisable at $0.75 per share, contains certain anti-dilution down-round features and
expires on January 15, 2023. If the Company ever defaults on the loan the warrants to be issued will increase from 50% of the number
of shares of common stock issuable upon conversion to 100%. On January 22, 2018, the Company entered into
a SPA and Security and Pledge Agreement with its first investor in the offering and issued a note to the investor in the principal
amount of $500,000. Subscription funds were received by the Company from the investor on February 7, 2018. In addition to the note,
the Company issued to the investor 384,615 warrants. The warrants are considered equity instruments based on the Company’s
adoption of ASU 2017-11. The proceeds received upon issuing the note
and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $838,404
determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest
rate of 2.1%; and volatility of 142%. The effective conversion rate resulted in a Beneficial Conversion Feature greater than the
proceeds received. Thus, the discount was limited to the proceeds received of $500,000 and was amortized to interest expense using
the effective interest method over the term of the note. On March 7, 2019, the Board of Directors of
the Company approved Amendment No. 1 to the 12% Senior Secured Convertible Promissory Note and the Warrant Agreement, each issued
January 22, 2018, respectively, to the note holder. The amendments (i) extend the maturity date of the note to March 1, 2021 and
extend the term of the warrants to March 6, 2024, (ii) lower the conversion price of the note and the exercise price of the warrants
to $0.20 and $0.30, respectively, and (iii) add an adjustment to the conversion and exercise price of the note and warrants, respectively,
in the event the Company does not achieve certain milestones during calendar 2019. The fair value of the warrants is $25,162 determined
using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest rate of
2.6%; and volatility of 127%. The effective conversion rate resulted in a discount of $23,956 and is amortized to interest expense
using the effective interest method over the term of the note. The Company recognized a loss on extinguishment of debt of $221,232
related to the decrease in conversion price. On January 1, 2020, the Company failed to achieve
certain milestones during calendar 2019 and, as such, the conversion/exercise prices of the note and warrants were adjusted to
$0.10 and $0.15, respectively. This resulted in an adjustment to retained earnings of $201 based on the change in fair value. Effective January 15, 2020, the Company went
into technical default of the note agreement as a result of not making the December 31, 2019 interest payment within the required
period. As a result, the principal was increased by 20%, or $100,000, and the Company was required to issue an additional 384,615
warrants at the then effective exercise price of $0.15 per share. The fair value of the warrants was $44,297, determined using
the Black-Scholes valuation model with the following assumptions: expected term of 4.14 years; risk free interest rate of 1.6%;
and volatility of 243%. Due to the default, this value was immediately expensed. As of March 31, 2020, the exercise price of
the warrants was further adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment
to retained earnings of $71 based on the change in fair value. As of September 30, 2020, the Company has accrued
interest related to this note of $67,676. For the three and nine months ended September 30, 2020, the Company also amortized to
interest expense $3,032 and $9,029 of the discount, respectively. The unpaid principal balance of the note is
$600,000 as of September 30, 2020, which includes the default penalty noted above, and the remaining unamortized discount is $5,009. On January 22, 2019, the Company entered into
a Securities Purchase Agreement and Security and Pledge Agreement with a single investor and issued a Secured Convertible Promissory
Note to the investor in the principal amount of $55,000. In addition to the note, the Company issued to the investor 36,667 warrants.
Each warrant is immediately exercisable at $0.75 per share, contains certain anti-dilution down-round features and expires on January
22, 2024. If the Company ever defaults on the loan, the warrants to be issued will increase from 50% of the number of shares of
common stock issuable upon conversion to 100%. The warrants are considered equity instruments based on the Company’s adoption
of ASU 2017-11. The proceeds received upon issuing the note
and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $3,217
determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest
rate of 2.6%; and volatility of 128%. The effective conversion rate resulted in a discount of $3,039 and is amortized to interest
expense using the effective interest method over the term of the note. As of March 31, 2020, the exercise price of
the warrants was adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to
retained earnings of $7 based on the change in fair value. The unpaid principal balance of the note and
accrued interest is $55,000 and $4,648, respectively, as of September 30, 2020, and the remaining unamortized discount is $0. For
the three and nine months ended September 30, 2020, the Company amortized to interest expense $194 from the amortization of the
discount. This note and accrued interest is due to a related party. On June 12, 2020, this note was amended to extend the maturity
date to January 22, 2021, and all events of default were waived. On March 7, 2019, the Board of Directors of
the Company approved a non-public offering of up to $500,000 aggregate principal amount of its 12% Senior Secured Convertible Notes.
The notes are convertible, in whole or in part, into shares of the Company’s common stock, at any time at a rate of $0.20
per share with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election. The notes
bear interest at a rate of 12% per annum and interest payments will be made on a quarterly basis. The notes mature March 1, 2021.
The conversion price of the notes is also subject to adjustments if the Company does not achieve certain milestones during the
calendar year 2019. The notes are governed by a Securities Purchase
Agreement and are secured by all the assets of the Company pursuant to a Security and Pledge Agreement. Funding is subject to the
occurrence of certain milestones, as stated in the SPA. In addition to the issuance of the notes in the offering, the Company’s
Board of Directors approved, as part of the offering, the issuance of warrants to purchase one share of the Company’s common
stock for 50% of the number of shares of common stock issuable upon conversion of each note. Each warrant is immediately exercisable
at $0.30 per share and expires five years from the issuance date. The exercise price of the warrants is also subject to adjustments
if the Company does not achieve certain milestones during the calendar year 2019. On March 6, 2019, the Company entered into
SPAs and Security and Pledge Agreements with its first two investors in the offering and issued notes to the investors in the
aggregate principal amount of $100,000. Subscription funds were received by the Company from the investors on March 6, 2019. In
addition to the notes, the Company issued to the investors an aggregate of 250,000 warrants. Each warrant is immediately exercisable
at $0.30 per share, contains certain anti-dilution down-round features and expires on March 6, 2024. If the Company ever defaults
on the loan the warrants to be issued will increase from 50% of the number of shares of common stock issuable upon conversion
to 100%. The warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11. The proceeds received upon issuing the notes
and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $12,646
determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest
rate of 2.5%; and volatility of 127%. The effective conversion rate resulted in a discount of $11,226 and is amortized to interest
expense using the effective interest method over the term of the notes. On January 1, 2020, the Company failed to achieve
certain milestones during calendar 2019 and, as such, the conversion/exercise prices of the note and warrants were adjusted to
$0.10 and $0.15, respectively. This resulted in an adjustment to retained earnings of $131 based on the change in fair value. Effective January 15, 2020, the Company went
into technical default of the note agreement as a result of not making the December 31, 2019 interest payment within the required
period. As a result, the principal was increased by 20%, or $20,000, in aggregate, and the Company was required to issue an additional
250,000 warrants at the then effective exercise price of $0.15 per share. The fair value of the warrants was $28,793, determined
using the Black-Scholes valuation model with the following assumptions: expected term of 4.14 years; risk free interest rate of
1.6%; and volatility of 243%. Due to the default, this value was immediately expensed. As of March 31, 2020, the exercise price of
the warrants was further adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment
to retained earnings of $46 based on the change in fair value. On September 21, 2020, these notes were amended
to reduce the conversion price of an aggregate of $20,000 of the total outstanding principal value of $120,000 from $0.10 to $0.01
per share. The remaining aggregate principal of $100,000 remains convertible at $0.10 per share. This modification to the notes
was considered substantial (i.e. the change in fair value of the conversion feature was greater than 10% of the carrying value
of the debt). As a result, the modification was accounted for as an extinguishment of debt, resulting in the recognition of an
extinguishment loss of $18,360 during the three and nine months ended September 30, 2020. As of September 30, 2020, the unpaid principal
balance of the notes is $120,000, which includes the default penalty noted above, accrued interest is $13,535 and the balance of
the unamortized discount is $0. For the three and nine months ended September 30, 2020, the Company also amortized to interest
expense $2,037 from the amortization of the discount. On August 2, 2019, the Company entered into
a Securities Purchase Agreement with an investor for the purchase of a 12% Secured Convertible Note in the principal amount of
up to $125,000. The note is convertible, in whole or in part, into shares of the Company’s common stock, at any time at a
rate of $0.08 per share with fractions rounded up to the nearest whole share, unless paid in cash at the Company’s election.
The note bears interest at a rate of 12% per annum and interest payments will be made on a quarterly basis. The note matures August
2, 2021. $75,000, $25,000, and $25,000 subscription funds were received by the Company from the investor on August 2, 2019, September
6, 2019, and October 16, 2019, respectively. In addition to the note, the Company issued to the investor an aggregate of 781,250
warrants. The warrants are considered equity instruments based on the Company’s adoption of ASU 2017-11. The proceeds received upon issuing the note
and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $71,035
determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest
rate of 1.6%; and volatility of 132%. The effective conversion rate resulted in a discount of $104,941 and is amortized to interest
expense using the effective interest method over the term of the note. Effective January 30, 2020, the Company went
into technical default of the note agreement as a result of not making the December 31, 2019 interest payment within the required
period. As a result, the Company was required to issue an additional 781,250 warrants at the then effective exercise price of $0.12
per share. The fair value of the warrants was $90,342, determined using the Black-Scholes valuation model with the following assumptions:
expected term of 4.76 years; risk free interest rate of 1.6%; and volatility of 233%. Due to the default, this value was immediately
expensed. As of March 31, 2020, the exercise price of
the warrants was adjusted to $0.00084 as a result of the down-round features being triggered. This resulted in an adjustment to
retained earnings of $70 based on the change in fair value. As of September 30, 2020, the unpaid principal
balance of the notes is $125,000, the accrued interest is $14,909 and the balance of the unamortized discount is $47,311. For
the three and nine months ended September 30, 2020, the Company amortized to interest expense $13,207 and $39,335 from the amortization
of the discount, respectively. This note is payable to a related party. On August 29, 2019, the Company entered into
a Securities Purchase Agreement with an investor for the purchase of a Convertible Promissory Note in the principal amount of up
to $105,000. The Note is not convertible within 180 days of receipt of funds for the first closing and is then convertible, in
whole or in part, into shares of the Company’s Common Stock at a rate of $0.20 per share. Upon an “Event of Default,”
as defined in the note, the conversion price becomes the “Variable Conversion Price” which is defined in the note as
“60% multiplied by the Marked Price.” “Market Price” is defined in the note as “the lowest one (1)
Trading Price (as defined in the note) for the common stock during the twenty-five (25) Trading Day period ending on the last complete
Trading Day prior to the Conversion Date.” The note bears interest at a rate of 10% per annum with principal and accrued
and unpaid interest payable six months from the receipt of funds for each tranche under the note. Subscription funds of $30,000
were received by the Company from the investor on September 6, 2019 for which the Company paid a purchase price of $35,000. In
addition to the notes, the Company issued to the investor an aggregate of 175,000 warrants. The warrants are considered equity
instruments based on the Company’s adoption of ASU 2017-11. The proceeds received upon issuing the notes
and warrants were allocated to each instrument on a relative fair value basis. The initial fair value of the warrants was $15,868
determined using the Black-Scholes valuation model with the following assumptions: expected term of 2.5 years; risk free interest
rate of 1.4%; and volatility of 132%. The effective conversion rate resulted in a discount of $10,378 and is amortized to interest
expense using the effective interest method over the term of the notes. As of March 31, 2020, the exercise price of
the warrants was adjusted to $0.00084 and the number of warrants was increased to 41,666,667 as a result of the down-round features
being triggered. This resulted in an adjustment to retained earnings of $203,002 based on the change in fair value. During the three months ended March 31, 2020,
the note went into default upon passing its maturity date. As a result, a default penalty of $26,250 was recorded and added to
the principal balance. In addition, the conversion price became the “Variable Conversion Price” as defined above. This
note became convertible into a variable number of shares of common stock for which there is no floor to the number of shares that
might be required to be issued. Based on the requirements of ASC 815, Derivatives and Hedging, the conversion feature represents
an embedded derivative that is required to be bifurcated and accounted for as a separate derivative liability. The derivative liability
is originally recorded at its estimated fair value and is required to be revalued at each conversion event and reporting period.
Changes in the derivative liability fair value are reported in operating results each reporting period. The Company valued the conversion feature on
the date of default resulting in initial liability of $159,888, which was immediately expensed due to the default. At each conversion
date, the Company recalculated the value of the derivative liability associated with the convertible note recording a gain (loss)
in connection with the change in fair market value. In addition, the pro-rata portion of the derivative liability as compared to
the portion of the convertible note converted was reclassed to additional paid-in capital. During the three and nine months ended
September 30, 2020, the Company recorded a gain/(loss) of $25,181 and ($114,050) related to the change of fair value of the derivative
liability. During the three and nine months ended September 30, 2020, the Company recorded $0 and $235,393 to additional paid-in
capital, respectively. Upon issuance and at each conversion, reporting
period date, and extinguishment date, the Company valued the conversion feature using the Black-Scholes option pricing model with
the following assumptions: conversion prices ranging from $0.0008 to $0.0073, the closing stock price of the Company's common stock
on the date of valuation ranging from $0.0022 to $0.021, an expected dividend yield of 0%, expected volatility ranging from 459%
to 574%, risk-free interest rates ranging from 0.11% to 0.39%, and an expected term of 0.25 years. On May 20, 2020, the second closing of the
Convertible Promissory Note occurred pursuant to which the Company paid a purchase price of $35,000 and received gross proceeds
of $29,300. In addition to the issuance of the note, the Company issued to the holder warrants to purchase one share of the Company’s
Common Stock for 100% of the number of shares of Common Stock issuable upon conversion of the funds received in the second closing.
Each warrant is immediately exercisable at $0.20 per share, unless adjusted, and expires on May 20, 2025. On July 29, 2020, the Company entered into
a Settlement and Mutual Release Agreement with the lender pursuant to which the Company paid $100,000 to the lender in exchange
for the full extinguishment of the remaining principal amount and all accrued and unpaid interest and penalties associated with
the Convertible Promissory Note dated August 29, 2019 issued to the lender (approximately $62,000). All remaining unexercised warrants
to purchase the Company’s Common Stock issued to the lender were also extinguished pursuant to the Settlement Agreement.
Upon receipt of the Settlement Amount by the lender, the lender agreed to release all reserved shares of the Company’s Common
Stock. The Settlement Agreement also provides for a full mutual release of the parties. The settlement payment was allocated to
the extinguished debt and warrants based on their relative fair values. The difference in the settlement amount allocated to the
debt components, including the related derivative liability, and the actual value of the debt components of $2,155 was recorded
as a gain on extinguishment during the three and nine months ended September 30, 2020. The settlement amount allocated to the warrants
of $1,609 was recorded as a reduction to additional paid-in capital. In addition, the remaining unamortized discount was fully
amortized to interest expense upon the settlement. For the three and nine months ended September
30, 2020, $26,420 and $39,572 of the note discount has been amortized to interest expense leaving an unamortized balance of $0. On July 29, 2020, the Company entered an Equity
Financing Agreement and Registration Rights Agreement with GHS Investments LLC (“ GHS In connection with entering into the Equity
Financing Agreement, on July 29, 2020, the Company issued to GHS a Convertible Promissory Note in the principal amount of $100,000
(the “$ 100k Note Also, in connection with entering into the
Equity Financing Agreement, on July 29, 2020, the Company issued to GHS a Convertible Promissory Note in the principal amount of
$75,000 (the “$75k Note As of September 30, 2020, the unpaid principal
balance of these notes is $175,000, and the accrued interest is $3,021. |
