Note 6 - CONVERTIBLE NOTES PAYABLE | Convertible notes payable consist of the following: As of March 31, December 31, 2019 2018 Various Convertible Notes (a) $ 43,500 $ 45,000 Ylimit, LLC Convertible Notes (b) 707,500 707,500 Golock Capital, LLC Convertible Notes (c) 302,067 302,067 Other Convertible Notes (d) 424,731 426,964 Total Convertible Notes 1,477,798 1,484,531 Discount (146,700 ) (249,241 ) Convertible notes, net $ 1,331,098 $ 1,232,290 _____________ (a) In August 2014 the Company issued a series of convertible notes with various interest rates ranging up to 10% per annum. The Note Conversion Price is determined as follows: (a) if the Note is converted upon the Next Equity Financing, an amount equal to 80% of the price paid per share paid by the investors in the Next Equity Financing; (b) if the Note is converted in the event of a Corporate Transaction, a price per share derived by dividing a “pre-money” valuation of $8,000,000 by the number of shares outstanding immediately prior to the time of such conversion, on a fully diluted basis; or (c) if the Note is converted as part of a Maturity Conversion, a price per unit derived by dividing a “pre-money” valuation of $8,000,000 by the total number of units (restricted and non-restricted) outstanding immediately prior to the time of such conversion, on a fully diluted basis. The notes are due and payable on demand at any time after the earlier of (i) 36 months following the note issuance or (ii) the consummation of a corporate transaction if not previously converted. The balance of the notes outstanding was $45,000 as of December 31, 2018. On March 4, 2019, a note holder elected to forgive and cancel their outstanding convertible note balance of $1,500, which the Company recorded as a gain on extinguishment of debt in the accompanying condensed consolidated statement of operations. The balance of the notes outstanding was $43,500 as of March 31, 2019, of which $28,500 was due to related parties. (b) On December 31, 2018, the aggregate convertible principal note balance to YLimit, LLC was $705,500 and the related debt discount was $70,078. The convertible notes have an interest rate of 10% per annum, a maturity date of May 9, 2019, and convertible into shares of common stock at 85% of the per share stock price in the equity funding, but in no event shall the conversion price be less than $0.035 per share. At March 31, 2019, the balance of notes outstanding was $707,500 and the balance of the debt discount was $6,330. (c) At December 31, 2018, the aggregate convertible notes balance to Golock Capital, LLC (“Lender”) was $302,067. The convertible notes have an interest rate of 10% per annum and maturity dates ranging from June 1, 2018 to November 1, 2018, and are convertible into shares of common stock of the Company at the lower of (i) $0.015 per share or, (ii) 58% of the lowest closing bid price in the 20 trading days prior to the day that the Lender requests conversion. At March 31, 2019, the balance of the notes outstanding was $302,067 but is subject to dispute with said holder as to the actual principal amount and interest calculations. (d) At December 31, 2018, the aggregate convertible notes balance to five lenders was $426,964 and the related debt discount was $179,162. The convertible notes have interest rates ranging from 8% to 12% per annum, maturity dates ranging from August 21, 2018 to June 19, 2020, and are convertible into shares of common stock of the Company at discount rates between 38% and 58% of the lowest trading price for the Company’s common stock during the prior twenty (20) trading day period, and for one lender, no lower than $0.035 per share. During the three months ended March 31, 2019, the Company entered into additional notes of $173,000, interest rates from 10% to 12%, and maturity dates ranging from January 22, 2020 to June 19, 2020 at conversion terms comparable to the terms above. During the three months ended March 31, 2019, the lenders elected to convert a portion of the Company’s outstanding principal and interest balances into the Company’s stock. In aggregate, the Company converted outstanding aggregate principal and interest balances of $186,574 into 127,152,659 shares of common stock with a fair value of $400,947, or $0.0015 per share. The aggregate difference between the total principal and interest converted of $186,574, and the market value of the shares issued of $400,947, was recorded as a loss on settlement of notes payable of $214,373 in the condensed consolidated statements of operations for the three months ended March 31, 2019. At March 31, 2019, the aggregate balance of the notes outstanding was $424,431 and the related debt discount was $140,370. The Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or the conversion price was variable. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was recorded as debt discount offsetting the fair value of the Notes and the remainder recorded as financing costs in the Consolidated Statement of Operations. The discount is being amortized using the effective interest rate method over the life of the debt instruments. The balance of the unamortized discount at December 31, 2018, was $249,241. During the three months ended March 31, 2019, the Company issued $173,000 of convertible notes whose conversion features created a derivative liability upon issuance with a fair value of $152,065, of which $82,306 was recorded as a valuation discount, and the remaining $69,759 was recorded as a financing cost. During the three months ended March 31, 2019, amortization of debt discount was $184,847. The unamortized balance of the debt discount was $146,700 as of March 31, 2019. For the purposes of Balance Sheet presentation, convertible notes payable have been presented as follows: March 31, 2019 December 31, 2018 Convertible notes payable, net $ 1,302,598 $ 1,202,290 Convertible notes payable, related party, net 28,500 30,000 Total $ 1,331,098 $ 1,232,290 |