| DEBT | 2. DEBT Short Term Debt The Company has a note payable of $100,000 due to its former Chief Executive Officer and President. The note bears an interest rate at the minimum applicable rate for loans of similar duration, which was 0.5% as of September 30, 2017. In June of 2017, an agreement was signed to extend the maturity date of this note to April 26, 2018. On August 31, 2016, the Company issued a promissory note of $300,000. The term of the note expires one year from the effective date and has an interest rate of 10%. 600,000 cashless warrants for the Company’s common shares were issued with the debt at a strike price of $0.50 per share in lieu of cash interest. The relative fair value of the warrants of $235,188 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note. The Company recognized interest expense of $39,198 and $156,792 associated with the amortization of debt discount for the three and nine months ended September 30, 2017, respectively. On June 22, 2017, the Company issued a promissory note of $1,000,000. The term of the note expires seven months from the effective date and has an interest amount of 40,000 upon maturity. 3,000,000 cashless warrants for the Company’s common shares were issued with the debt at a strike price of $0.50 per share in lieu of cash interest. The relative fair value of the warrants of $597,565 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note. The Company recognized interest expense of $261,790 and $284,554 associated with the amortization of debt discount for the three and nine months ended September 30, 2017, respectively. On July 28, 2017, the Company issued a promissory note of $20,000. The term of the note expires eight months from the effective date and has interest of $1,600 due upon maturity. 60,000 warrants for the Company’s common shares were issued with the debt at a strike price of $0.50 per share. The relative fair value of the warrants of $10,951 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note. The Company recognized interest expense of $2,920 associated with the amortization of debt discount for the three and nine months ended September 30, 2017. On July 31, 2017, the Company issued a promissory note of $100,000. The term of the note expires ten months from the effective date and has interest of $8,000 due upon maturity. 300,000 warrants for the Company’s common shares were issued with the debt at a strike price of $0.50 per share. The relative fair value of the warrants of $53,562 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note. The Company recognized interest expense of $10,891 associated with the amortization of debt discount for the three and nine months ended September 30, 2017. On August 10, 2017, the Company issued a promissory note of $30,000. The term of the note expires ten months from the effective date and has interest $2,400 due upon maturity. 90,000 warrants for the Company’s common shares were issued with the debt at a strike price of $0.50 per share. The relative fair value of the warrants of $9,110 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note. The Company recognized interest expense of $1,549 associated with the amortization of debt discount for the three and nine months ended September 30, 2017. On August 21, 2017, the Company issued a promissory note of $20,000. The term of the note expires eight months from the effective date and has interest of $1,600 due upon maturity. 60,000 warrants for the Company’s common shares were issued with the debt at a strike price of $0.50 per share. The relative fair value of the warrants of $9,764 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the note. The Company recognized interest expense of $1,627 associated with the amortization of debt discount for the three and nine months ended September 30, 2017. On August 21, 2017, the Company issued four promissory notes totaling $200,000. The term of the notes expires one year from the effective date and have interest of $8,000 due upon maturity. 1,200,000 warrants for the Company’s common shares were issued with the debt at a strike price of $0.50 per share. The relative fair value of the warrants of $133,975 was recognized as a debt discount which is being amortized on a straight-line basis over the term of the notes. The Company recognized interest expense of $14,886 associated with the amortization of debt discount for the three and nine months ended September 30, 2017. As of September 30, 2017, and December 31, 2016, the aggregate outstanding balance of non-convertible notes payable was $1,770,000 and $400,000, and unamortized discount was $498,499 and $156,792, respectively. Notes Payable – Related Party On January 27, 2017, the Company borrowed $380,000 under a short-term note agreement with a major shareholder. Under the terms of this agreement, the note is to be repaid within four months of funding along with $19,000 paid at the maturity of the note in lieu of interest. On July 17, 2017 On March 6, 2017, the Company borrowed $120,000 under a short-term note agreement with a major shareholder. Under the terms of this agreement, the note is to be repaid within four months of funding along with $6,000 paid at the maturity of the note in lieu of interest. On July 17, 2017 On April 4, 2017, the Company borrowed $100,000 under a short-term note agreement with a major shareholder. Under the terms of this agreement, the note is going to be repaid within four months of funding along with $5,000 paid at the maturity of the note in lieu of interest. On July 17, 2017 On July 17, 2017 On August 10, 2017, the Company entered into a Loan Agreement with a major shareholder pursuant to which, the shareholder invested $200,000 in a non-convertible 30-day unsecured promissory note issued on August 10, 2017. The interest under the note is a cash payment of $30,000 due at maturity. The foregoing note has been consolidated into the Conversion Note, as such term is defined below. As of September 30, 2017, and December 31, 2016, the aggregate outstanding balance of notes payable to related parties was $1,422,884 and $500,000, respectively. The aggregate amortization of the discounts on the promissory notes for the nine months ended September 30, 2017 was $473,220. On October 11, 2017, the Company entered into a Note Conversion Agreement and on October 18, 2017, the Company entered into an amendment thereto (referred herein to together as the “Note Conversion Agreement”) with a major shareholder pursuant to which the Company and the major shareholder agreed to convert six promissory notes issued to the major shareholder upon their specific expiration dates, together with an additional investment amount of $1,000,000, which was received by the Company on October 18, 2017, into a convertible promissory note (the “Conversion Note”). The original principal amount under the Conversion Note was the total of four promissory notes that had passed their maturity date as of the date of the entry into the Note Conversion Agreement, which equaled $1,221,844 An additional $1,000,000 was added to the principal amount of the Conversion Note on October 18, 2017, upon its receipt by the Company. Further, upon the end of the term of another of the six notes on November 7, 2017, the amount due on that note which equals $126,000 shall be added to the total amount due under the Conversion Note. Further, upon the end of the term of the last of the six notes on December 4, 2017, the amount due on that note which equals $105,000 shall be added to the total amount due under the Conversion Note. The Conversion Note has a term of one year and accrues interest at 10% for every four months that it is issued and can be converted at the option of the major shareholder into an investment in the Company’s offering of its convertible promissory notes and warrants (the “Note Offering”), at a 15% discount. Further pursuant to the Note Conversion Agreement, on October 18, 2017, the major shareholder was issued a warrant to purchase 1,000,000 shares of the Company’s Common Stock with a ten-year term and an exercise price of $.50. The foregoing descriptions of the Note Conversion Agreement and Conversion Note is not complete and is qualified in its entirety by reference to the full text of the form the Note Conversion Agreement (and amendment thereto) and the Conversion Note and warrant, copies of which are filed as Exhibit 10.1 and 10.2, respectively, to this report, and are incorporated by reference herein. The form of subscription agreement, form of note and form of warrant for the Note Offering, are filed as Exhibit 10.3 to this report. Advances – Related Party During the three and nine months ended September 30, 2017, the Company received advances from its Chief Executive Officer totaling $69,000 and $138,500, respectively, and repaid advances totaling $20,000 and $204,500, respectively. As of September 30, 2017, and December 31, 2016, the aggregate outstanding balance of advances to related parties was $444,000 and $510,000, respectively. Convertible Notes Payable On January 27, 2017, the Company entered into a note purchase agreement with an investor pursuant to which an investor purchased a promissory note from the Company in exchange for $200,000 and a warrant to purchase 400,000 shares of the company’s common stock with a $0.50 exercise price and five-year term. The promissory note had a clause that automatically modified it 30 days after issuance into a convertible note. The convertible note was issued on February 27, 2017, pursuant to the agreement, with a principal amount of $200,000, includes the issuance of 200,000 additional warrants, interest of 8% per annum, a maturity date of one year and is convertible into 400,000 units, with each unit consisting of a share of common stock and a warrant with a five-year life from the date of conversion and an exercise price of $0.50 per share, subject to certain anti-dilution provisions. The relative fair value of the 600,000 warrants was $125,931 which was recognized as a discount to the debt. This note also gave rise to a beneficial conversion feature of $38,655 which is recognized as additional paid in capital and a corresponding debt discount. All debt discounts are being recognized on a straight-line basis over the term of the note. The note also contains an additional warrant expense of $35,414 associated with the warrants that are to be issued upon conversion, which is to be recognized only upon conversion. On March 8, 2017, the Company entered into a note purchase agreement with an investor pursuant to which an investor purchased a promissory note from the Company in exchange for $200,000 and a warrant to purchase 400,000 shares of the company’s common stock with a $0.50 exercise price and five-year term. The promissory note had a clause that automatically modified it 30 days after issuance into a convertible note. The convertible note was issued on April 8, 2017, pursuant to the agreement, with a principal amount of $200,000, includes the issuance of 200,000 additional warrants, interest of 8% per annum, a maturity date of one year and is convertible into 400,000 units, with each unit consisting of a share of common stock and a warrant with a five-year life from the date of conversion and an exercise price of $0.50 per share, subject to certain anti-dilution provisions. The relative fair value of the 600,000 warrants was $130,207 which was recognized as a discount to the debt. This note also gave rise to a beneficial conversion feature of $36,196 which is recognized as additional paid in capital and a corresponding debt discount. All debt discounts are being recognized on a straight-line basis over the term of the note. The note also contains an additional warrant expense of $33,596 associated with the warrants that are to be issued upon conversion, which is to be recognized only upon conversion. On March 9, 2017, the Company entered into note purchase agreements with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $150,000, respectively, and a warrant to purchase 300,000 shares of the company’s common stock, respectively, with a $0.50 exercise price and five-year term. The promissory note had a clause that automatically modified it 30 days after issuance into a convertible note. The convertible note was issued on April 9, 2017, pursuant to the agreement, with a principal amount of $150,000, includes the issuance of 150,000 additional warrants, interest of 8% per annum, a maturity date of one year and is convertible into 300,000 units, with each unit consisting of a share of common stock and a warrant with a five-year life from the date of conversion and an exercise price of $0.50 per share, subject to certain anti-dilution provisions. The relative fair value of the 450,000 warrants was $96,019 which was recognized as a discount to the debt. This note also gave rise to a beneficial conversion feature of $28,018 which is recognized as additional paid in capital and a corresponding debt discount. All debt discounts are being recognized on a straight-line basis over the term of the note. The note also contains an additional warrant expense of $25,963 associated with the warrants that are to be issued upon conversion, which is to be recognized only upon conversion. On March 12, 2017, the Company entered into note purchase agreements with two investors, pursuant to which investors purchased a promissory note from the Company in exchange for $100,000 and a warrant to purchase 200,000 shares of the company’s common stock, respectively, with a $0.50 exercise price and five-year term. The promissory note had a clause that automatically modified it 30 days after issuance into a convertible note. The convertible note was issued on April 12, 2017, pursuant to the agreement with a principal amount of $100,000, includes the issuance of 100,000 additional warrants, interest of 8% per annum, a maturity date of one year and is convertible into 200,000 units, with each unit consisting of a share of common stock and a warrant with a five-year life from the date of conversion and an exercise price of $0.50 per share, subject to certain anti-dilution provisions. The relative fair value of the 300,000 warrants was $64,386 which was recognized as a discount to the debt. This note also gave rise to a beneficial conversion feature of $18,479 which is recognized as additional paid in capital and a corresponding debt discount. All debt discounts are being recognized on a straight-line basis over
the term of the note. The note also contains an additional warrant expense of $17,135 associated with the warrants that are to be issued upon conversion, which is to be recognized only upon conversion. On April 24, 2017, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. (“Power Up”) pursuant to which Power Up purchased a convertible promissory note evidencing a loan of $58,500. The Company paid off this note in full on October 19, 2017. On April 25, 2017, the Company borrowed $115,000 from JSJ Investments, Inc. (“JSJ”) and issued to JSJ a $115,000 convertible promissory note with a maturity date of January 25, 2018. The Company paid off this note in full on October 19, 2017. On April 28, 2017, the Company entered into a Securities Purchase Agreement with Silo Equity Partners Venture Fund, LLC (“Silo”) pursuant to which Silo purchased a convertible promissory note evidencing a loan of $100,000. The Company paid off the this note in full on October 19, 2017. On May 4, 2017, the Company agreed to borrow up to $500,000 from JMJ Financial (“JMJ”) and issued to JMJ a convertible promissory note of up to $500,000, evidencing the loan with a maturity date of May 4, 2018. The Company paid off the this note in full in two tranches, a payment on August 3, 2017 and a payment on August 4, 2017 in equal amounts, with both payments totaling $416,842 of which $101,053 penalty on prepayment was recorded as loss on debt extinguishment. On July 17, 2017, the Company entered into note purchase agreements with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $200,000, and a warrant to purchase 800,000 shares of the company’s common stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 60 days after issuance into 400,000 shares of Common Stock and a warrant to purchase 400,000 shares of Common Stock. The relative fair value of the 800,000 warrants was $132,889 which was recognized as a discount to the debt. This note also gave rise to a beneficial conversion feature of $34,955 which is recognized as additional paid in capital and a corresponding debt discount. All debt discounts are being recognized on a straight-line basis over the term of the note. The note also contains an additional warrant expense of $32,156 associated with the warrants that are to be issued upon conversion, which is to be recognized only upon conversion. The note was automatically converted on September 15, 2017. On July 25, 2017, the Company entered into a Securities Purchase Agreement with Power Up Lending Group Ltd. pursuant to which Power Up purchased a convertible promissory note evidencing a loan of $43,000. This note entitles the holder to 12% interest per annum and matures on April 30, 2018. Power Up may convert the note into shares of the Company’s common stock beginning on the date which is 180 days from the issuance date of the note, at a price equal to 61% of the average of the lowest two trading prices during the 15 trading day period ending on the last complete trading date prior to the date of conversion, provided, however, that Power Up may not convert the note to the extent that such conversion would result in Power Up’s beneficial ownership being in excess of 4.99% of the Company’s issued and outstanding common stock together with all shares owned by Power Up and its affiliates. If the Company prepays the note within 30 days of its issuance, the Company must pay all of the principal at a cash redemption premium of 110%; if such prepayment is made between the 31st day and the 60th day after the issuance of the note, then such redemption premium is 115%; if such repayment is made from the sixty first 61st to the 90th day after issuance, then such redemption premium is 120%; if such repayment is made from the 91st to the 120th day after issuance, then such redemption premium is 125%; if such repayment is made from the 121st to the 150th day after issuance, then such redemption premium is 130%; and if such prepayment is after the 151st day and before the 181st date of issuance of the note then such redemption premium is 135%. In connection with the Note and Securities Purchase Agreement the Company paid $3,000 for Power Up’s legal fees incurred in connection with the note and Securities Purchase Agreement and therefore only received $40,000 under the note. The Company agreed that so long as it has any obligation under the note, that is shall not sell, lease or otherwise dispose of any significant portion of its assets
outside the ordinary course of business without the written consent of Power Up. The Company’s transfer agent reserved 1,040,469 shares of the Company’s common stock, in the event that the note is converted. The foregoing descriptions of the Securities Purchase Agreement and note is not complete and is qualified in its entirety by reference to the full text of the form of Securities Purchase Agreement and form note, copies of which were filed as Exhibit 10.10 and 10.11, respectively, to the Company’s quarterly report for the quarter ended June 30, 2017, which was filed with the SEC on August 9, 2017, and are incorporated by reference herein. On August 3, 2017, the Company entered into note purchase agreements with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $15,000, and a warrant to purchase 30,000 shares of the company’s common stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 60 days after issuance into 30,000 shares of Common Stock and a warrant to purchase 30,000 shares of Common Stock. The relative fair value of the 30,000 warrants was $6,355 which was recognized as a discount to the debt. This note also gave rise to a beneficial conversion feature of $4,524 which is recognized as additional paid in capital and a corresponding debt discount. All debt discounts are being recognized on a straight-line basis over the term of the note. The note also contains an additional warrant expense of $4,121 associated with the warrants that are to be issued upon conversion, which is to be recognized only upon conversion. On September 7, 2017, the Company entered into note purchase agreements with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $25,000, and a warrant to purchase 100,000 shares of the company’s common stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 60 days after issuance into 50,000 shares of Common Stock and a warrant to purchase 50,000 shares of Common Stock. The relative fair value of the 100,000 warrants was $14,374 which was recognized as a discount to the debt. This note also gave rise to a beneficial conversion feature of $5,566 which is recognized as additional paid in capital and a corresponding debt discount. All debt discounts are being recognized on a straight-line basis over the term of the note. The note also contains an additional warrant expense of $5,060 associated with the warrants that are to be issued upon conversion, which is to be recognized only upon conversion. On September 26, 2017, the Company entered into note purchase agreements with an investor, pursuant to which an investor purchased a promissory note from the Company in exchange for $100,000, and a warrant to purchase 400,000 shares of the company’s common stock, with a $0.50 exercise price and 10-year term. There is no interest under the promissory note. The promissory note has a clause that automatically converts the note 60 days after issuance into 200,000 shares of Common Stock and a warrant to purchase 200,000 shares of Common Stock. The relative fair value of the 400,000 warrants was $56,765 which was recognized as a discount to the debt. This note also gave rise to a beneficial conversion feature of $22,892 which is recognized as additional paid in capital and a corresponding debt discount. All debt discounts are being recognized on a straight-line basis over the term of the note. The note also contains an additional warrant expense of $20,343 associated with the warrants that are to be issued upon conversion, which is to be recognized only upon conversion. During the nine months ended September 30, 2017, the full principal balances of certain notes totaling $1,033,500 were converted pursuant to the terms of the notes into 2,071,800 shares of the Company’s common stock and 2,071,800 warrants to purchase common stock. Upon conversion, the Company accelerated the recognition of all remaining debt discount and also recognized additional interest expense of $181,442 associated with the warrants that were issued upon conversion. This additional warrant expense was immediately recognized as interest expense with an offset to additional paid-in-capital. Aggregate amortization of the discounts on the convertible notes for the nine months ended September 30, 2017 and 2016 was $1,105,888 and $2,030,827, respectively. The amortization for the nine months ended September 30, 2017 included $25,829 of
amortization of deferred financing costs. As of September 30, 2017, and December 31, 2016, the aggregate outstanding balance of convertible notes payable was $1,919,093 and $1,440,206, respectively, net of unamortized discounts of $118,086 and $343,294. The total beneficial conversion feature debt discount from convertible notes for the nine months ended September 30, 2017 was $816,211. Derivative Liabilities - Convertible Notes As of September 30, 2017, the fair value of the outstanding convertible note derivatives was determined to be $847,778 and the Company recognized a gain of $2,308,958. There were no new convertible note derivatives that arose during the nine months ended September 30, 2017. Accounts Payable - Related Party As of September 30, 2017, and December 31, 2016, there is $18,115 and $2,470, respectively, due to related parties, which is non-interest bearing and due on demand. |
