CONVERTIBLE NOTES PAYABLE | NOTE 4 – CONVERTIBLE NOTES PAYABLE As long as the following convertible notes remain outstanding, the Company is restricted from incurring any indebtedness or liens, except as permitted (as defined), and cannot amend its charter in any matter that materially effects rights of noteholders, repay or repurchase more than de minimis number of shares of common stock other than conversion or warrant shares, repay or repurchase all or any portion of any indebtedness, or pay cash dividends. Auctus Note #1 On October 24, 2019 (the "Date of Issuance") the Company issued a convertible promissory note (the "Auctus Note #1") with a face value of $250,000, maturing on October 23, 2020, and a stated interest of 8% to a third-party investor. The Auctus Note #1 is convertible into common stock of the Company, par value $.001 per share (the "Common Stock") at any time after the earlier of: (i) 180 days from the date of the Auctus Note #1, or (ii) upon effective date of a registration statement. The conversion price of the Auctus Note #1 is equal to the lesser of : (i) the lowest trading price for the twenty-day period prior to the date of the Auctus Note #1 or (ii) 65% of the average of the three lowest trading prices during the twenty days prior to a conversion notice on the applicable trading market or the closing bid price on the applicable trading market. The Auctus Note #1 was funded on October 29, 2019, when the Company received proceeds of $222,205, after disbursements for the lender's transaction costs, fees and expenses which in aggregate resulted in a total discount of $27,795 to be amortized to interest expense over the life of the Auctus Note #1. Additionally, the variable conversion rate component requires that the Auctus Note #1 be valued at its stock redemption value (i.e., "if-converted" value) pursuant to ASC 480, Distinguishing Liabilities from Equity Along with the Auctus Note #1, on the Date of Issuance the Company issued 208,333 Common Stock Purchase Warrants (the "Warrants"), exercisable immediately at a fixed exercise price of $0.60 with an expiration date of October 23, 2023. The Company has determined that the Warrants are exempt from derivative accounting and were valued at $101,937 on the Date of Inception using the Black Scholes Options Pricing Model. Assumptions used for the Black Scholes Options Pricing Model include (1) stock price of $0.49 per share, (2) exercise price of $0.60 per share, (3) term of 5 years, (4) expected volatility of 251% and (5) risk free interest rate of 2.51%. The note proceeds of $250,000 were then allocated between the fair value of the Auctus Note #1 ($250,000) and the Warrants ($101,937), resulting in a debt discount of $72,412. As the warrants were exercisable immediately, this debt discount was amortized in its entirety to interest expense on the Date of Issuance The Auctus Note #1 was paid off on October 24, 2019, and the warrants were converted on March 12,2020 Auctus Note #2 On Additionally, the variable conversion rate component requires that the Auctus Note #2 be valued at its stock redemption value (i.e., "if-converted" value) pursuant to ASC 480, Distinguishing Liabilities from Equity, with the excess over the undiscounted face value being deemed a premium to be added to the principal balance and accreted to additional paid-in capital over the life of the Auctus Note #2. As such, the Company recorded a premium of $82,500 as a reduction to additional paid-in capital based on a discounted "if-converted" rate of $0.20 per share (lowest trading price during the 20 days preceding the note's issuance), which computed to 1,250,000 shares of 'if-converted' common stock with a redemption value of $332,500 due to $0.266 per share fair market value of the Company's stock on the Auctus Note #2's date of issuance. Debt discount amortization is recorded as interest expense, while debt premium accretion is recorded as an increase to additional paid-in capital. For the three months ending at March 31, 2020, the Company amortized $4,647 debt discount to operations as interest expense, and accreted $24,121 of premium to additional paid-in capital. Along The Auctus Note #2 was paid off on February 20, 2020, and the warrants were converted on March 12,2020. Other notes currently convertible In the period October 24, 2019 through February 18, 2020, the Company entered into three separate Secured Promissory Note Agreements ("SPA") with a face value of $300,000, and received net proceeds of $255,000. The Notes are convertible into common stock of the Company, par value $.001 per share (the "Common Stock") at any time after the earlier of: (i) 180 days from the date of the Note or (ii) upon effective date of a registration statement. The conversion price of the Notes is equal to 65% of the lowest trading price at close during the twenty days prior to a conversion notice. The debt discount of $37,100 is amortized over the duration of the loans. The Debentures permit the Company to pre-pay its obligations at a premium prior to maturity. For the three months ended at March 31, 2020, the Company amortized $6,415 debt discount to operations as interest expense. Additionally, The Company also issued the noteholders five-year warrants with cashless exercise provisions to purchase a total of 122,000 shares of Common Stock of the Company at an exercise price of $2.00 per share with cashless exercise provisions to four of the Lenders. The Company has determined that the Warrants are exempt from derivative accounting. The note proceeds of $300,000 were then allocated between the fair value of the Notes ($300,000) and the Warrants ($55,061), resulting in a debt discount of resulting in a fully amortized debt discount of $34,317. As the warrants were exercisable immediately, this debt discount was amortized in its entirety to interest expense on the Date of Issuance. For the three months ending at March 31, 2020, the Company issued 72,000 warrants, resulting in an amortized debt discount of $12,711. Notes not yet convertible In the period October 23, 2019 through March 18, 2020, the Company entered into seven separate Secured Promissory Note Agreements ("SPA") with a face value of $636,800, and received net proceeds of $563,500. The Notes are convertible into common stock of the Company, par value $.001 per share (the "Common Stock") at any time after the earlier of: (i) 180 days from the date of the Note or (ii) upon effective date of a registration statement. The conversion price of the Notes is equal to 65% of the lowest trading price at close during the twenty days prior to a conversion notice. The debt discount of $73,300 is amortized over the duration of the loans. The Debentures permit the Company to pre-pay its obligations at a premium prior to maturity. For the three months ended at March 31, 2020, the Company amortized $12,261 debt discount to operations as interest expense. The Company also issued the noteholders five-year warrants with cashless exercise provisions to purchase a total of 150,000 shares of Common Stock of the Company at an exercise price of $2.00 per share with cashless exercise provisions to four of the Lenders. The Company has determined that the Warrants are exempt from derivative accounting. The note proceeds of $636,800 were then allocated between the fair value of the Notes ($636,800) and the Warrants ($97,850), resulting in a debt discount of resulting in a fully amortized debt discount of $68,910. As the warrants were exercisable immediately, this debt discount was amortized in its entirety to interest expense on the Date of Issuance. For the three months ending at March 31, 2020, the Company did not issue any warrants. A summary of the outstanding notes at March 31, 2020, are as follows: Debtor Date of Maturity Principal Net Interest Warrants Issued Term Exercise Amortization Debt GS Capital 10/30/2019 10/30/2020 $ 125,000 $ 109,500 4 % 50,000 5 $ 2.00 $ 23,867 $ 15,500 Power Up #1 10/24/2019 10/23/2020 106,000 100,000 8 % - - - - 6,000 Peak One 10/23/2019 10/22/2022 120,000 103,000 0 % 50,000 5 2.00 21,606 17,000 Tangiers 10/23/2019 10/22/2020 106,300 100,000 8 % 50,000 5 2.00 21,116 6,300 FirstFire 11/20/2019 11/20/2020 125,000 109,500 4 % 50,000 5 2.00 17,979 15,500 Power Up #2 12/30/2019 12/30/2020 54,600 50,000 8 % - - - - 4,600 EMA Financial 01/10/2020 01/10/2021 125,000 109,500 4 % 50,000 5 2.00 5,948 15,500 Crown Bridge 02/20/2020 02/20/2021 55,000 42,500 4 % 22,000 5 2.00 10,054 12,500 PowerUp #3 02/19/2020 02/19/2021 56,600 52,000 8 % - - - - 4,600 PowerUp #4 03/18/2020 03/18/2021 64,900 60,000 8 % - - - - 4,900 $ 938,400 $ 836,000 272,000 $ 100,570 $ 102,400 Convertible notes payable consists of the following at March 31, 2020 and December 31, 2019: March 31, 2020 December 31, 2019 Principal balance $ 938,400 $ 886,900 Unamortized debt discount (76,265 ) (60,038 ) Unamortized debt premium 856,560 24,121 Outstanding, net of debt discount and premium $ 1,718,695 $ 850,983 |