CONVERTIBLE NOTES PAYABLE | NOTE 9 –CONVERTIBLE NOTES PAYABLE Convertible notes payable as of March 31, 2019 and December 31, 2018 are comprised of the following: March 31, December 31, 2019 2018 $550k Note - July 2016 $ 611,651 * $ 594,813 $50k Note - July 2016 62,019 * 60,312 $111k Note - May 2017 128,734 * 125,190 $171.5k Note - October 2017 --- 186,472 $103k Note I - October 2018 103,000 103,000 $103k Note II - November 2018 103,000 103,000 $153k Note - November 2018 153,000 153,000 $103k Note III - December 2018 103,000 103,000 $78k Note I - January 2019 78,000 --- $78k Note II - January 2019 78,000 --- 1,420,404 1,428,787 Less: unamortized discount (363,089 ) (386,473 ) Convertible notes payable, net of original issue discount and debt discount 1,057,315 1,042,314 * - Denotes that convertible note payable is carried at fair value Amortization expense and interest expense recognized on each convertible note outstanding during the three months ended March 31, 2019 and 2018 were as follows: Amortization of Debt Discount Interest Expanse Three Months Ended Three Months Ended 2019 2018 2019 2018 $550k Note - July 2016 $ --- $ --- $ 8,137 $ 8,137 $50k Note - July 2016 --- --- 1,233 1,233 $111k Note - May 2017 --- 11,011 4,078 4,078 $53k Note - July 2017 --- 1,520 --- 116 $35k Note - September 2017 --- 7,972 --- 614 $55k Note - September 2017 --- 10,849 --- 1,085 $53k Note II - October 2017 --- 17,036 --- 1,307 $171.5k Note - October 2017 --- 42,404 1,785 4,229 $57.8k Note - January 2018 --- 13,923 --- 1,392 $112.8k Note - February 2018 --- 17,608 --- 1,761 $83k Note - February 2018 --- 10,460 --- 1,046 $105k Note - March 2018 --- 7,479 --- 748 $103k Note I - October 2018 32,526 --- 2,540 --- $103k Note II - November 2018 31,856 --- 2,540 --- $153k Note - November 2018 50,440 --- 3,773 --- $103k Note III - December 2018 25,397 --- 2,540 --- $78k Note I - January 2019 21,714 --- 1,624 --- $78k Note II - January 2019 17,451 --- 1,410 --- $ 179,384 $ 140,262 $ 29,660 $ 25,746 Unamortized debt discount on outstanding convertible notes payable as of March 31, 2019 and December 31, 2018 are comprised of the following: Unamortized Discount as of March 31, December 31, 2019 2018 $103k Note I - October 2018 $ 43,730 $ 76,256 $103k Note II - November 2018 53,801 85,656 $153k Note - November 2018 79,022 129,462 $103k Note III - December 2018 69,701 95,099 $78k Note I - January 2019 56,286 --- $78k Note II - January 2019 60,549 --- $ 363,089 $ 386,473 Certain of our convertible notes payable are also carried at fair value and revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.” The changes in fair value during the three months ended March 31, 2019 and 2018 on such instruments were as follows: Change in Fair Value of Debt Fair Value of Debt as of Three Months Ended March 31, March 31, December 31, 2019 2018 2019 2018 $550k Note - July 2016 $ 16,838 $ 46,298 $ 611,651 $ 594,813 $50k Note - July 2016 1,707 8,199 62,019 60,312 $111k Note - May 2017 3,544 8,815 128,734 125,190 $171.5k Note - October 2017 1,781 --- --- 186,472 $ 23,870 $ 63,312 $ 802,404 $ 966,787 Convertible Notes Payable ($550,000) – July 2016 On July 7, 2016, the Company entered into a 6% fixed convertible secured promissory note with an investor with a face value of $550,000 (the “$550k Note”). The $550k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price of $0.08 per share, or 6,875,000 of the Company’s common shares, and is secured by all of the Company’s assets. The Company received $500,000 net proceeds from the note after a $50,000 original issue discount. The $550k Note was originally scheduled to mature on April 11, 2017, but the maturity date was extended to July 7, 2018 during August 2017 and to December 31, 2019 during July 2018. The discount from the original issue discount, warrants and embedded conversion feature (“ECF”) associated with the $550k Note was amortized over the original life of the note. The $550k Note is carried at fair value due to an extinguishment and reissuance recorded in 2017 and is revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.” Convertible Notes Payable ($50,000) – July 2016 On July 7, 2016, the Company entered into a 10% fixed convertible commitment fee promissory note with an investor with a face value of $50,000 (the “$50k Note”). The $50k Note was originally scheduled to mature on April 11, 2017, but the maturity date was extended to July 11, 2018 during August 2017 and to December 31, 2019 during July 2018. The $50k note was issued as a commitment fee payable to the Investment Agreement investor in exchange for the investor’s commitment to enter into the Investment Agreement, subject to registration of the shares underlying the Investment Agreement. The $50k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price of $0.10 per share, or 500,000 of the Company’s common shares. The $50k Note is carried at fair value due to an extinguishment and reissuance recorded in 2017 and is revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.” Convertible Notes Payable ($111,000) – May 2017 On May 22, 2017, the Company entered into a 10% fixed convertible secured promissory note with an investor with a face value of $111,000 (the “$111k Note”). The $111k Note is convertible into shares of the Company’s common stock at the discretion of the note holder at a fixed price of $0.35 per share, or 317,143 of the Company’s common shares, and is secured by all of the Company’s assets. The Company received $100,000 net proceeds from the note after an $11,000 original issue discount. At inception, the investors were also granted a five-year warrant to purchase 133,333 shares of the Company’s common stock at an exercise price of $0.75 per share. On March 28, 2018, in exchange for a five-year warrant to purchase 125,000 shares of HLYK common stock at an exercise price of $0.05 per share, the holder of the $111k Note agreed to extend the maturity date from the original date of January 22, 2018 until July 11, 2018. The fair value of the warrants using Black/Scholes was $10,199 with the following assumptions: risk-free interest rate of 2.59%, expected life of 5 years, volatility of 578.45%, and expected dividend yield of zero. The issuance of the warrants in exchange for the maturity extension was treated as an extinguishment and reissuance of existing debt pursuant to the guidance of ASC 470-50. Accordingly, the $111k Note is carried at fair value and is revalued at each period end, with changes to fair value recorded to the statement of operations under “Change in Fair Value of Debt.” During July 2018, the maturity date of the $111k Note was further extended until December 31, 2017. Convertible Notes Payable ($53,000) – July 2017 On July 10, 2017, the Company entered into a securities purchase agreement for the sale of a $53,000 convertible note (the “$53k Note”) to PULG. On January 8, 2018, the Company prepaid the balance on the $53k Note, including accrued interest, for a one-time cash payment of $74,922. The Company recognized a gain on debt extinguishment in the three months ended March 31, 2018 in connection with the repayment, as follows: Cash repayment $ 74,922 Less face value of convertible note payable retired (53,000 ) Less carrying value of derivative financial instruments arising from ECF (53,893 ) Less accrued interest (2,644 ) Plus carrying value of discount at extinguishment 18,427 Gain on extinguishment of debt $ (16,188 ) Convertible Notes Payable ($35,000) – September 2017 On September 7, 2017, the Company entered into a securities purchase agreement for the sale of a $35,000 convertible note (the “$35k Note”) to PULG. On March 5, 2018, the Company prepaid the balance on the $35k Note, including accrued interest, for a one-time cash payment of $49,502. The Company recognized a gain on debt extinguishment in the three months ended March 31, 2018 in connection with the repayment, as follows: Cash repayment $ 49,502 Less face value of convertible note payable retired (35,000 ) Less carrying value of derivative financial instruments arising from ECF (37,269 ) Less accrued interest (1,716 ) Plus carrying value of discount at extinguishment 12,705 Gain on extinguishment of debt $ (11,778 ) Convertible Notes Payable ($55,000) – September 2017 On September 11, 2017, the Company entered into a securities purchase agreement for the sale of a $55,000 convertible note (the “$55k Note”) to Crown Bridge Partners LLC. On March 13, 2018, the Company prepaid the balance on the $55k Note, including accrued interest, for a one-time cash payment of $85,258. The Company recognized a gain on debt extinguishment in the three months ended March 31, 2018 in connection with the repayment, as follows: Cash repayment $ 85,258 Less face value of convertible note payable retired (55,000 ) Less carrying value of derivative financial instruments arising from ECF (69,687 ) Less accrued interest (2,759 ) Plus carrying value of discount at extinguishment 27,425 Gain on extinguishment of debt $ (14,763 ) Convertible Notes Payable ($171,500) – October 2017 On October 27, 2017, the Company entered into a securities purchase agreement for the sale of a $171,500 convertible note (the “$171.5k Note”) to an individual lender. The $171.5k Note included a $21,500 original issue discount, for net proceeds of $150,000. The $171.5k Note had an interest rate of 10% and a default interest rate of 22% and matures on October 26, 2018. The $171.5k Note was convertible into common stock of the Company by the holder at any time following 180 days after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 35% discount to the lowest closing bid price during the twenty (20) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the $171.5k Note, 300% of the outstanding principal and any interest due amount was immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the $171.5k Note, 150% of the outstanding principal and any interest due amount was immediately due. During three months ended March 31, 2019, the holder of the $171.5k Note converted the entire principal balance of $171,500 into 2,512,821 shares of Company common stock. Convertible Notes Payable ($57,750) – January 2018 On January 2, 2018, the Company entered into a securities purchase agreement for the sale of a $57,750 convertible note (the “$58k Note”). The transaction closed on January 3, 2018. The $58k Note included a $5,250 original issue discount and $2,500 fee for net proceeds of $50,000. The $58k Note had an interest rate of 10% and a default interest rate of 18% and was scheduled to mature on January 2, 2019. The $58k Note was convertible into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to 28% discount to the lowest bid or trading price of the Company’s common stock during the twenty (20) trading days prior to the conversion date. On June 26, 2018, the holder agreed, without consideration, to reduce the discount to 28% of the volume weighted average price of the Company’s common stock for the 10 days prior to the conversion date. During third and fourth quarter of 2018, the holder of the $58k Note converted the entire principal balance of $57,750, as well as accrued interest in the amount of $3,786, into 384,839 shares of Company common stock. Accrued but unpaid interest of $21,990 was outstanding as of March 31, 2019. Convertible Notes Payable ($112,750) – February 2018 On February 2, 2018, the Company entered into a securities purchase agreement for the sale of a $112,750 convertible note (the “$113k Note”). The transaction closed on February 8, 2018. The $113k Note included $12,750 fees for net proceeds of $100,000. The $113k Note has an interest rate of 10% and a default interest rate of 24% and matures on February 2, 2019. The $113k Note may be converted into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to 40% discount to the lowest bid or trading price of the Company’s common stock during the twenty (20) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the Note, 200% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the Note, 150% of the outstanding principal and any interest due amount shall be immediately due. On August 7, 2018, the Company prepaid the balance on the $113k Note, including accrued interest, for a one-time cash payment of $151,536. In connection with the extinguishment, the Company also issued the holder a 3-year warrant to purchase 100,000 shares of Company common stock at an exercise price of $0.25. The fair value of the warrant was $50,614. The Company recognized a gain on debt extinguishment of $2,054 in the third quarter of 2018 in connection with the repayment Convertible Notes Payable ($83,000) – February 2018 On February 13, 2018, the Company entered into a securities purchase agreement for the sale of a $83,000 convertible note (the “$83k Note”). The transaction closed on February 21, 2018. The $83k Note included $8,000 fees for net proceeds of $75,000. The $83k Note has an interest rate of 10% and a default interest rate of 24% and matures on February 13, 2019. The $113k Note may be converted into common stock of the Company by the holder at any time after the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to 40% discount to the lowest bid or trading price of the Company’s common stock during the twenty (20) trading days prior to the conversion date. Upon an event of default, 200% of the outstanding principal and any interest due amount shall be immediately due. On August 16, 2018, the Company prepaid the balance on the $83k Note, including accrued interest, for a one-time cash payment of $111,596. In connection with the extinguishment, the Company also issued the holder a 5-year warrant to purchase 237,143 shares of Company common stock at an exercise price of $0.35. The fair value of the warrant was $92,400. The Company recognized a loss on debt extinguishment of $51,251 in the third quarter of 2018 in connection with the repayment. Convertible Notes Payable ($105,000) – March 2018 On March 5, 2018, the Company entered into a securities purchase agreement for the sale of a $105,000 convertible note (the “$105k Note”). The transaction closed on March 12, 2018. The $105k Note included $5,000 fees for net proceeds of $100,000. The $105k Note has an interest rate of 10% and a default interest rate of 24% and matures on March 5, 2019. The $113k Note may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 9.9% beneficial ownership limitation, at a conversion price per share equal to 40% discount to the lowest bid or trading price of the Company’s common stock during the twenty (20) trading days prior to the conversion date. Upon an event of default, 110-150% of the outstanding principal and any interest due amount shall be immediately due, depending on the nature of the breach. On August 30, 2018, the Company prepaid the balance on the $105k Note, including accrued interest, for a one-time cash payment of $140,697. The Company recognized a gain on debt extinguishment of $51,804 in the third quarter of 2018 in connection with the repayment. Convertible Notes Payable ($78,000) – January 2019 On January 14, 2019, the Company entered into a securities purchase agreement for the sale of a $78,000 convertible note (the “$78k Note”). The $78k Note included $3,000 fees for net proceeds of $75,000. The $78k Note has an interest rate of 10% and a default interest rate of 24% and matures on October 14, 2019. The $78k Note may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 25% discount to the lowest bid or trading price of the Company’s common stock during the ten (10) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due. The fair value of the ECF of the $78k Note was calculated using the Black-Scholes pricing model at $78,088, with the following assumptions: risk-free interest rate of 2.57%, expected life of 0.75 years, volatility of 243.61%, and expected dividend yield of zero. In connection with the $78k Note, the Company also issued to the holder 28,000 shares of Company common stock valued at $4,676, which was recorded to equity. Because the fair value of the ECF exceeded the net proceeds from the $78k Note, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $78,088 and the common shares issued of $4,676 over the net proceeds from the note of $75,000, for a net charge of $7,764. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows: Embedded conversion feature $ 78,088 Original issue discount and fees 3,000 Fair value of shares recorded to equity 4,676 Financing cost (7,764 ) Convertible note --- Gross proceeds $ 78,000 Convertible Notes Payable ($78,000) – January 2019 On January 24, 2018, the Company entered into a securities purchase agreement for the sale of a $78,000 convertible note (the “$78k Note II”). The $78k Note II included $3,000 fees for net proceeds of $75,000. The $78k Note II has an interest rate of 10% and a default interest rate of 22% and matures on November 15, 2019. The $78k Note II may be converted into common stock of the Company by the holder at any time after the 6-month anniversary of the issuance date, subject to a 4.99% beneficial ownership limitation, at a conversion price per share equal to a 39% discount to the lowest bid or trading price of the Company’s common stock during the fifteen (15) trading days prior to the conversion date. Upon an event of default caused by the Company’s failure to deliver shares upon a conversion pursuant to the terms of the note, 300% of the outstanding principal and any interest due amount shall be immediately due. Upon an event of default caused by the Company’s breach of any other events of default specified in the note, 150% of the outstanding principal and any interest due amount shall be immediately due. The fair value of the ECF of the $78k Note II was calculated using the Black-Scholes pricing model at $101,139, with the following assumptions: risk-free interest rate of 2.58%, expected life of 0.81 years, volatility of 243.03%, and expected dividend yield of zero. Because the fair value of the ECF exceeded the net proceeds from the $78k Note II, a charge was recorded to “Financing cost” for the excess of the fair value of the fair value of the ECF of $101,139 over the net proceeds from the note of $75,000, for a net charge of $26,139. The ECF qualifies for derivative accounting and bifurcation under ASC 815, “Derivatives and Hedging.” The final allocation of the proceeds at inception was as follows: Embedded conversion feature $ 101,139 Original issue discount and fees 3,000 Financing cost (26,139 ) Convertible note --- Gross proceeds $ 78,000 |