| ST. GEORGE CONVERTIBLE NOTE/BAYBRIDGE CONVERTIBLE NOTE | NOTES PAYABLE On February 24, 2017 , the Company entered into an agreement with a vendor to convert the balance of their account into three notes payable in the aggregate amount of $ 765,784 . The notes bear interest of 6% per annum and matured on February 24, 2018 ; all outstanding principal and accrued interest is due and payable upon maturity. As of March 31, 2018 , the Company had not made any payments on these notes, the accrued interest was $ 51,052 , and the note is due upon demand. On March 23, 2017 , the Company entered into an agreement with a vendor to convert the balance of their account into a note payable in the amount of $ 356,742 . The note bears interest of 5% per annum and matured on March 31, 2018 ; all outstanding principal and accrued interest is due and payable upon maturity. As of March 31, 2018 , the Company had not made any payments on the note, the accrued interest was $ 18,228 , and the note is due upon demand. On June 30, 2017, the Company entered into an agreement with a vendor to convert the balance of their account into a note payable in the amount of $ 250,000 . The note bears interest of 5% per annum and matured on February 28, 2018 ; all outstanding principal and accrued interest is due and payable upon maturity. As of March 31, 2018 , the Company had not made any payments on these notes, the accrued interest was $9,384 , and the note is due upon demand. On September 30, 2017, the Company entered into a settlement agreement with a customer to convert the credit balance of their account into a note payable in the amount of $ 215,234 . The note bears interest of 5% per annum and matures on September 30, 2018 . The Company has not made the monthly payments of $18,426 that were to commence on October 30, 2017; as of March 31, 2018 the company had paid principal of $20,029 and interest of $897 . The remaining principal and interest balances, as of March 31, 2018 , were $195,205 and $4,138 , respectively. SECURED PROMISSORY NOTE On November 30, 2017 , the Company, entered into a note purchase and exchange agreement (the “Note SPA”) with Global Ichiban Ltd (“Investor”), for the private placement of up to $2,000,000 of the Company’s Secured Convertible Promissory Notes (“Notes”) in exchange for $2,000,000 of gross proceeds in several tranches through June 2018, The closing of each tranche is conditioned upon the Company having an average daily trading volume for its Common Stock of at least $50,000 for the 20 trading day period preceding such future tranche closing dates. Pursuant to the terms of the Note SPA, the Company and the Investor also agreed to exchange certain outstanding securities held by the Investor for additional Notes. As of November 30, 2017 , the Investor surrendered for cancellation (i) its outstanding promissory note dated September 13, 2017 ( $3,359,539 principal and accrued interest), (ii) its outstanding promissory note dated October 31, 2017 ( $252,466 principal and accrued interest), and (iii) its 400 shares of outstanding Series J Preferred Stock ( $445,222 of capital and accrued dividends). In exchange, the Company issued to the Investor $4,057,227 aggregate principal amount of additional Notes. Please refer to Note 11 and Note 21 of the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for further discussion on the canceled promissory notes and the canceled Series J Preferred Stock shares. All principal and accrued interest on the Notes are convertible at any time, in whole or in part, at the option of the Investor into shares of Common Stock at a variable conversion price equal to the lowest of (i) 85% of the average VWAP for the shares over the prior 5 trading days, (ii) the closing bid price for the shares on the prior trading day, or (iii) $0.002 per share The Notes may not be converted and shares of Common Stock may not be issued pursuant to the Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of Common Stock. Of the Notes issued on November 30, 2017 , $3,359,539 aggregate principal amount will mature on December 15, 2020 . Principal and interest was originally to be payable in 36 equal monthly installments of $111,585 beginning January 15, 2018 . During the three months ended March 31, 2018 , principal of $1,250,000 was converted into 2,450,980,392 shares of common stock, and $96,121 of interest was converted to principal. The remaining note is payable in 32 equal monthly installments of $80,036 beginning May 15, 2018 . Of the Notes issued on November 30, 2017 , $697,688 aggregate principal amount will mature on November 30, 2018 . Principal and interest will be payable upon maturity. The $2,000,000 aggregate principal amount of Notes, issued in eight tranches, will mature on the first anniversary of the respective issuance date. Principal and interest will be payable upon maturity. As of March 31, 2018 , the closing dates, closing amounts, and maturity dates on completed Note SPA tranches are as follows: Closing Date Closing Amount Maturity Date 11/30/2017 $ 250,000 11/30/2018 12/28/2017 $ 250,000 12/28/2018 1/11/2018 $ 250,000 1/11/2019 1/25/2018 $ 250,000 1/25/2019 2/8/2018 $ 250,000 2/8/2019 2/21/2018 $ 250,000 2/21/2019 3/7/2018 $ 250,000 3/7/2019 3/21/2018 $ 250,000 3/21/2019 The Notes will be secured by a security interest on substantially all of the Company’s assets, bear interest at a rate of 12% per annum and contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the Notes, and (ii) bankruptcy or insolvency of the Company. There are no registration rights applicable to the Notes. As of March 31, 2018 , the aggregate principal and interest balance of the Notes were $4,903,348 and $83,406 , respectively. Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging , the conversion option in the Notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the Notes approximates management’s estimate of the fair value of the embedded derivative liability based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions identified below. Due to the varying terms and varying issue dates, the tranches of this instrument were broken into four separate instruments for valuation purposes. 1) The first valuation was done on the November 30, 2017 Note with term of three years. The derivative value of this note was $3,742,002 as of December 31, 2017 . 1) The second valuation was done on the group of Notes dated November 30, 2017, that had a term of one year. The derivative value of this group of notes was $888,168 as of December 31, 2017 . 2) The third valuation was done on the Note dated December 28, 2017, which had a term of one year. The derivative value of this note was $267,008 on December 31, 2017 . 3) For the Notes dated in the first quarter of 2018 , we did a fourth valuation. Although the notes were entered into at various dates, we used a weighted average issuance date of February 15, 2018 for a combined valuation purpose. Management's analysis, using the following assumptions: annual volatility of 54% present value discount rate of 12% and a dividend yield of 0% , resulted in a fair value of the embedded derivative associated with these Notes of $1,151,162 as of February 15, 2018 . The value of the embedded derivative associated with these Notes was recorded as a debt discount. The derivative liability associated with the Notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At March 31, 2018 , the Company conducted a fair value assessment of the embedded derivative associated with the three valuation groups discussed above. 1) For the November 30, 2017 3yr Note: Management conducted a fair value assessment with the following assumptions: annual volatility of 64% present value discount rate of 12% and a dividend yield of 0% as of March 31, 2018 . As a result of the fair value assessment, the Company recorded a gain of $612,155 as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $3,129,847 as of March 31, 2018 . 2) For the November 30, 2017 1yr Notes: Management conducted a fair value assessment with the following assumptions: annual volatility of 52% present value discount rate of 12% and a dividend yield of 0% as of March 31, 2018 . As a result of the fair value assessment, the Company recorded a gain of $174,989 as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $713,179 as of March 31, 2018 . 3) For the December 28, 2017 1yr Note: Management conducted a fair value assessment with the following assumptions: annual volatility of 52% present value discount rate of 12% and a dividend yield of 0% as of March 31, 2018 . As a result of the fair value assessment, the Company recorded a gain of $78,871 as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $188,137 as of March 31, 2018 . 4) For the first quarter 2018 1yr Notes: Management conducted a fair value assessment with the following assumptions: annual volatility of 52% present value discount rate of 12% and a dividend yield of 0% as of March 31, 2018 . As a result of the fair value assessment, the Company recorded a loss of $878,973 as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Consolidated Statements of Operations to properly reflect the fair value of the embedded derivative of $2,030,135 as of March 31, 2018 . During the first quarter 2018 , a net loss of $12,958 had been recorded to reflect the total derivative liability of $6,061,298 as of March 31, 2018 . PROMISSORY NOTES Offering of Unsecured, Non-Convertible Notes During October 2016, the Company received $420,000 from a separate private investor. These funds, along with $250,000 of additional funding, were rolled into a promissory note, executed on January 17, 2017, in the amount of $700,000 issued with a discount of $30,000 which will be charged to interest expense ratably over the term of the note. The note bears interest at 12% per annum and matures on July 17, 2017 . Principal and interest on this note are payable at maturity. This note is not convertible into equity shares of the Company and is unsecured. On June 30, 2017, the Company and the private investor agreed to a 12 month payment plan on the balance of this promissory note. Interest will continue to accrue on this note at 12% per annum and payments of approximately $62,000 will be made monthly beginning in July 2017. The Company has not made all the payments according to this payment plan, and the note is payable upon demand. As of March 31, 2018 , $ 205,563 of principal and $ 45,414 of interest had been paid on this note. The outstanding principal and accrued interest balances on the note as of March 31, 2018 were $494,437 and $ 41,756 , respectively. On November 16, 2017 , the Company initiated a non-convertible, unsecured promissory note with a private investor for $275,000 . The promissory note was issued with an original issue discount of $25,000 , resulting in proceeds to the company of $250,000 . The note does not have a stated interest rate and matured on December 18, 2017 . As of March 31, 2018 , no payments had been made on this note and the Company has accrued interest at an inferred rate of 12% resulting in an accrued interest balance of $9,493 , as of March 31, 2018 . This note is payable upon demand. On January 31, 2018 , the Company initiated a non-convertible, unsecured promissory note with a private investor for an aggregate principal amount of $200,000 . The promissory note was issued with an original issue discount of $22,500 , resulting in proceeds to the company of $177,500 , which was received in December 2017. The note bears interest at 12% per annum and matures on December 29, 2018 . All principal and interest is payable upon maturity. The Company received $30,000 in additional proceeds from this investor during the three months ended March 31, 2018 , and the Company has received further proceeds as of the date of this report (please refer to Note 18 for further information). As of the date of this report, the amended note has not been finalized. As of March 31, 2018 , the principal and interest balances on this note were $230,000 and $6,473 , respectively. ST. GEORGE CONVERTIBLE NOTE On September 8, 2017 , the Company entered into a securities purchase agreement with St. George Investments LLC (“Investor”), for the private placement of $ 1,725,000 principal amount of the Company’s Original Issue Discount Convertible Promissory Notes. On September 11, 2017 , the Company sold and issued $ 1,725,000 principal amount of the convertible notes to the Investor in exchange for $ 1,500,000 of gross proceeds, and paid $20,000 in financing costs. The original issue discount of $225,000 , and the financing fee, will be charged to interest expense, ratably, over the life of the note. Unless earlier converted or prepaid, the convertible notes will mature on March 11, 2019 . The notes do not bear interest in the absence of an event of default. For the first six months after the issuance of the notes, the Company will make a monthly cash repayment on the notes of approximately $96,000 . Thereafter, the Investor may request that the Company make monthly partial redemptions of the note up to $150,000 per month. If the Investor does not request the full $150,000 redemption amount in any one month, the unused portion of such monthly redemption amount can be added to future monthly redemption amounts. But in no event can the amount requested by the Investor for any one month exceed $275,000 . Redemption amounts are payable by the Company in cash. Beginning ten months after the issuance of the convertible notes, cash redemption payments by the Company will be subject to a 15% redemption premium. Beginning six months after the issuance of the convertible notes, the Company also has the option (subject to customary equity conditions) to pay redemption amounts in the form of shares of common stock. Payments in the form of shares would be calculated using a variable conversion price equal to the lower of (i) 85% of the average VWAP for the shares over the prior five trading days or (ii) the closing bid price for the shares on the prior trading day. All principal and accrued interest on the Notes are convertible at any time, in whole or in part, at the option of the Investor into shares of Common Stock at a fixed conversion price of $0.004 per share. The Notes contain standard and customary events of default including but not limited to: (i) failure to make payments when due under the Notes; and (ii) bankruptcy or insolvency of the Company. Upon the occurrence of an event of default, the Notes will begin to bear interest at the rate of 22% per annum. In addition, upon the occurrence of an event of default, the Investor has the option to increase the outstanding balance of the Notes by 25% . In connection with the closing under the Note SPA, the Company issued 37,500,000 unregistered shares of common stock to the Investor as an origination fee. The closing stock price on the date of close was $0.0017 resulting in an interest expense of $ 63,750 being recorded as of the date of close. The Notes may not be converted and shares of Common Stock may not be issued pursuant to the Notes if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the outstanding shares of Common Stock. As of March 31, 2018 , cash payments of $191,667 had been made on this note, and $75,000 had been converted into 187,500,000 shares of the Company's common stock. The remaining balance on the note was $1,458,333 as of March 31, 2018 . In lieu of making the December 2017 through March 2018 cash payments, the share reserve was increased by 5 billion shares, and the variable conversion price changed to the lower of (i) 60% of the average VWAP for the shares over the prior five trading days or (ii) the closing bid price for the shares on the prior trading day, please refer to Note 18 for more information on the change in VWAP discount. Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging , the conversion option in the Convertible Promissory Notes were deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. As of December 31, 2017 , the derivative liability was $394,280 . The derivative liability associated with the Convertible Promissory Notes is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At March 31, 2018 , the Company conducted a fair value assessment of the embedded derivative associated with the St. George Convertible Notes. As a result of the fair value assessment, the Company recorded a $824,900 loss as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 , to properly reflect the fair value of the embedded derivative of $1,219,180 as of March 31, 2018 . The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the Convertible Promissory Notes approximates management’s estimate of the fair value of the embedded derivative liability at March 31, 2018 based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 56% present value discount rate of 12% and dividend yield of 0% . BAYBRIDGE CONVERTIBLE NOTE On December 6, 2017 , the Company entered into a securities exchange agreement (the “Exchange Agreement”) with BayBridge Capital Fund LP (“BayBridge”). Pursuant to the terms of the Exchange Agreement, the Investor agreed to surrender and exchange 675 shares of outstanding Series J Preferred Stock ( $755,417 of capital and accrued dividends). In exchange, the Company issued to the Investor an unsecured promissory note with an aggregate principal amount of $840,000 (the “Exchange Note”), with an original issue discount of $84,583 . Please refer to Note 21 of the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017 for further discussion on the Series J Preferred Stock. The Exchange Note is unsecured, has no applicable registration rights, bears interest at a rate of 12% per annum, matures on December 6, 2018 , and contains standard and customary events of default including but not limited to: (i) failure to make payments when due under the Exchange Note, and (ii) bankruptcy or insolvency of the Company. Principal and interest are payable upon maturity. Payments of principal and accrued interest on the Exchange Note are payable in cash or, at the option of the Company, in shares of Common Stock at a variable conversion price equal to the lowest of (i) 85% of the average VWAP for the shares over the prior 5 trading days, (ii) the closing bid price for the shares on the prior trading day, or (iii) $0.003 per share. Payments in shares of Common Stock may not be issued pursuant to the Exchange Note if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 9.99% of the outstanding shares of Common Stock. Pursuant to a number of factors outlined in ASC Topic 815, Derivatives and Hedging , the conversion option in the Exchange Note was deemed to include an embedded derivative that required bifurcation and separate accounting. As such, the Company ascertained the value of the conversion option as if separate from the convertible issuance and appropriately recorded that value as a derivative liability. At December 31, 2017 , the derivative liability associated with the promissory note was $542,733 . The derivative liability associated with the Exchange Note is subject to revaluation on a quarterly basis to reflect the market value change of the embedded conversion option. At March 31, 2018 , the Company conducted a fair value assessment of the embedded derivative associated with the Exchange Note. As a result of the fair value assessment, the Company recorded a $349,048 gain as "Change in fair value of derivatives and gain/(loss) on extinguishment of liabilities, net" in the Condensed Consolidated Statements of Operations, to properly reflect the fair value of the embedded derivative of $193,685 as of March 31, 2018 . The fair value measurements rely primarily on Company-specific inputs and the Company’s own assumptions. With the absence of observable inputs, the Company determined these recurring fair value measurements reside primarily within Level 3 of the fair value hierarchy. The derivative associated with the Exchange Note approximates management’s estimate of the fair value of the embedded derivative liability at March 31, 2018 based on using a Monte Carlo simulation following a Geometric Brownian Motion with the following assumptions: annual volatility of 50% , present value discount rate of 12% and dividend yield of 0% . As of March 31, 2018 , principal of $380,000 and interest of $20,717 had been converted into 897,418,314 shares of common stock and no cash payments of principal or interest had been made. The principal and accrued interest balances as of March 31, 2018 were $460,000 and $653 , respectively. |
