CONVERTIBLE PROMISSORY NOTES | 5. CONVERTIBLE PROMISSORY NOTES As of December 31, 2018 and 2017, the outstanding convertible promissory notes are summarized as follows: Convertible Promissory Notes, net of debt discount $ 3,657,427 Less current portion 1,580,955 Total long-term liabilities $ 2,076,472 Maturities of long-term debt for the next five years are as follows: Year Ending December 31, Amount 2019 1,580,955 2020 1,815,000 2021 125,000 2022 - 2023 136,471 $ 3,657,427 At December 31, 2018, the $3,803,431 in convertible promissory notes has a remaining debt discount of $146,005, leaving a net balance of $3,657,427. On various dates from 2014 through May, 2015, the Company issued unsecured convertible promissory notes (the "2014-2015 Notes"), that matured on various dates and were extended sixty (60) months from the effective date of each Note. The 2014-2015 Notes bear interest at 10% per annum. The 2014-2015 Notes may be converted into shares of the Company's common stock at conversion prices ranging from the lesser of $2.10 to $4.90 (subject to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on any trade day following issuance of the 2014-2015 Notes. In addition, for as long as the 2014-2015 Notes or other convertible notes in effect between the purchaser and the Company are outstanding, if the Company issues any security with terms more favorable than the terms of the 2014-2015 Notes or such other convertible notes or a term was not similarly provided to the purchaser of the 2014-2015 Notes or such other convertible notes, then such more favorable or additional term shall, at the purchaser's option, become part of the 2014-2015 Notes and such other convertible notes. The conversion feature of the 2014-2015 Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the 2014-2015 Notes. During the year ended December 31, 2018, the Company issued 257,596,986 shares of common stock, upon conversion of $206,700 in principal, plus accrued interest of $79,245, with a fair value loss on settlement of $630,236. As of December 31, 2018, the 2014-2015 Notes had an aggregate remaining balance of $1,279,300. The unsecured convertible promissory notes (the "OID Notes") had an aggregate remaining balance of $184,124, plus accrued interest of $13,334. The OID Notes included an original issue discount and one-time interest, which has been fully amortized. The OID Notes matured on December 31, 2017, which were extended to June 30, 2018. The OID Notes were convertible into shares of the Company's common stock at a conversion price initially of $15.31. After the amendment, the conversion price changed to the lesser of $2.80 per share, or b) fifty percent (50%) of the lowest trade price of common stock recorded since the original effective date of this note, or c) the lowest effective price per share granted to any person or entity after the effective date. The conversion feature of the notes was considered a derivative in accordance with current accounting guidelines, because of the reset conversion features of the notes. During the year ended December 31, 2018, the Company issued 98,600,000 shares of common stock upon conversion of principal in the amount of $47,563, plus accrued interest of $6,667, with a fair value loss of $201,670. The remaining balance as of December 31, 2018, was $143,138 which includes interest of $6,667. The Company issued various, unsecured convertible promissory notes (the "2015-2016 Notes"), on various dates ending on May 19, 2016. The 2015-2016 Notes matured and were extended from the date of each tranche through maturity dates ending on May 19, 2020. The 2015-2016 Notes bear interest at 10% per annum. The 2015-2016 Notes may be converted into shares of the Company's common stock at conversion prices ranging from the lesser of $0.70 to $2.80 (subject to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on any trade day following issuance of the 2015-2016 Notes. The conversion feature of the 2015-2016 Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the 2015-2016 Notes. The remaining balance of the 2015-2016 Notes as of December 31, 2018, was $1,325,000. The Company issued a convertible note (the "Dec 2015 Note") in exchange for accounts payable in the amount of $432,048, which could be converted into shares of the Company's common stock after December 31, 2015. The Dec 2015 Note was accounted for under ASC 470, whereby, a beneficial conversion feature was recorded at time of issuance. The Dec 2015 Note did not meet the criteria of a derivative, and was accounted for as a beneficial conversion feature, which was amortized over the life of the Dec 2015 Note and recognized as interest expense in the financial statements. On January 1, 2016, the Dec 2015 Note met the criteria of a derivative and was accounted for under ASC 815. The Dec 2015 Note has zero stated interest rate, and the conversion price shall be equal to 75% of the average three lowest last sale prices traded during the 25 trading days immediately prior to conversion. As of December 31, 2018, the remaining balance on the Dec 2015 Note was $167,048. The Company issued a convertible note (the "Sep 2016 Note") in exchange for accounts payable in the amount of $430,896, which could be converted into shares of the Company's common stock after September 15, 2016. The Sep 2016 Note was accounted for under ASC 470, whereby, a beneficial conversion feature was recorded at time of issuance. The Sep 2016 Note met the criteria of a derivative and was accounted for under ASC 815. The Sep 2016 Note has zero stated interest rate, and the conversion price shall be equal to 75% of the average three lowest last sale prices traded during the 25 trading days immediately prior to conversion. The Sep 2016 Note did not meet the criteria of a derivative at the date of the issuance, and was accounted for as a beneficial conversion feature, which was amortized over the life of the Sep 2016 Note and recognized as interest expense in the financial statements. The conversion feature of the Sep 2016 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion feature of the Sep 2016 Note. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $187,906 during the year ended December 31, 2018. As of December 31, 2018, the remaining balance on the Sep 2016 Note was $430,896. The Company issued an unsecured convertible promissory note (the "Dec 20 Note"), in the amount of $150,000 on December 20, 2017. The Dec 20 Note matures on December 20, 2018. The Dec 20 Note bears interest at 10% per annum. The Dec 20 Note may be converted into shares of the Company's common stock at a conversion price of the lesser of $0.05 per share or 50% of the lowest trade price during the twenty trading days immediately before the conversion. The conversion feature of the Dec 20 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Dec 20 Note. During the year ended the Company issued 117,677,432 shares of common stock, upon conversion of principal in the amount of $150,000, plus accrued interest of $10,149, with a fair value loss on settlement of $245,496. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $43,820 during the year ended December 31, 2018. As of December 31, 2018, the Dec 20 Note was fully converted. The Company issued an unsecured convertible promissory note (the "Dec 22 Note"), in the amount of $75,000 on December 22, 2017. The Dec 22 Note matures on December 22, 2018. The Dec 22 Note bears interest at 10% per annum. The Dec 22 Note may be converted into shares of the Company's common stock at a conversion price of the lesser of $0.05 per share or 50% of the lowest trade price during the twenty trading days upon default of the prepayment date. The conversion feature of the Dec 22 Note was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Dec 22 Note. During the year ended the Company issued 57,575,291 shares of common stock, upon conversion of principal in the amount of $5,044, with a fair value loss on settlement of $99,987. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $8,410 during the year ended December 31, 2018. As of December 31, 2018, the Dec 22 Note was fully converted. The Company issued various unsecured convertible promissory notes (the "Jan-Aug 2018 Notes"), in the aggregate amount of $293,000 on various dates from January 24, 2018 thru August 28, 2018. The Jan-Aug 2018 Notes matures on dates from January 24, 2018 thru August 28, 2019. The Jan-Aug 2018 Notes bear interest at 10% per annum. The Jan-Aug 2018 Notes may be converted into shares of the Company's common stock at a variable conversion price of 61% of the lowest one (1) trading day during the ten (10) trading days prior to conversion. The conversion feature of the Jan-Aug 2018 Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Jan-Aug 2018 Notes. During the year ended the Company issued 147,383,053 shares of common stock, upon conversion of principal in the amount of $212,000, plus accrued interest of $10,600, with a fair value loss on settlement of $243,183. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $241,928 during the year ended December 31, 2018. As of December 31, 2018, the balance remaining on the Jan-Aug 2018 Notes was $81,000. The Company issued (2) unsecured convertible promissory notes (the "Feb 2018 Notes"), in the aggregate principal amount of $157,500 (each in the amount of $78,750) on February 23, 2018. The Feb 2018 Notes matures on February 23, 2019, and bear interest at 10% per annum. The first of the two Feb 2018 Notes shall be paid for by the Buyer. The second of the two Feb 2018 Notes shall initially be paid for by the issuance of an offsetting $78,750 secured note issued to the Company by the Buyer. The first of the two notes was funded with cash and the Company must agree to the funding of the second of the two Feb 2018 Notes, before it can be funded with cash. The second of the two Feb 2018 Notes is secured by assets of the Buyer having a fair market value of at least $78,750. The second of the Feb 2018 Notes was issued on August 23, 2018 in the amount of $78,750. The second of the Feb 2018 Notes may be converted into shares of the Company's common stock at a conversion price of $0.03 or 50% discount of the lowest trading price during the twenty (20) trading days prior to conversion. The conversion feature of the Feb 2018 Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Feb 2018 Notes. During the year ended December 31, 2018, the Company issued 176,743,238 shares of common stock, upon conversion of principal in the amount of $116,950, plus accrued interest of $5,438, with a fair value loss on settlement of $373,896. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $71,159 during the year ended December 31, 2018. As of December 31, 2018, the balance remaining on the Feb 2018 Notes was $40,550. The Company issued various unsecured convertible promissory notes (the "Apr & May 2018 Notes"), in the aggregate amount of $300,000 on various dates of April 2, 2018 and May 31, 2018. The Apr & May 2018 Notes matures on dates of April 2, 2019 and May 31, 2019. The Apr & May 2018 Notes bear interest at 10% per annum. The Apr & May 2018 Notes may be converted into shares of the Company's common stock at a variable conversion price of 50% of the lesser of the lowest trading price twenty-five (25) trading days prior to conversion. The conversion feature of the Apr & May 2018 Notes was considered a derivative in accordance with current accounting guidelines because of the reset conversion features of the Notes. During the year ended December 31, 2018, the Company issued 58,800,000 shares of common stock upon conversion of $31,835 in principal, plus accrued interest of $8,266, with a fair value loss on settlement of $55,600. The Company recorded amortization of debt discount, which was recognized as interest expense in the amount of $107,080 during the year ended December 31, 2018. As of December 31, 2018, the remaining balance on the Apr & May 2018 Notes were $268,165. We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory notes was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair value recognized in earnings. The Company recorded a derivative liability representing the imputed interest associated with the embedded derivative. The derivative liability is adjusted periodically according to the stock price fluctuations. The derivative liability recognized in the financial statements as of December 31, 2018 was $9,360,204. |