Convertible Note and Derivative Liabilities | Note 4 – Convertible Note and Derivative Liabilities (1) 8% Convertible notes with warrants issued in December 2019 and February 2020 In December 2019, we issued and sold in a private offering 8% convertible notes in the aggregate principal amount of $70,000. Such notes were due on December 31, 2021 and are convertible into shares of our common stock at a conversion price for each share of common stock equal to the lesser of: (a) $0.50; (b) the lowest price at which the Company has converted any convertible security of the Company (to the holder or to any third party) within 30 trading days prior to the date of delivery of the applicable notice of conversion; and (c) so long as lower than (a) or (b), such other price as the Company and the holder may agree. In connection with the 8% convertible note issuance, we issued warrants to purchase an aggregate of 70,000 shares of common stock at an exercise price of $1.00. The Company extended the maturity date of the notes to December 2022 upon initial maturity, and further extended the maturity date to December 2023 and subsequently, December 2025 under the same terms and conditions. The balance owing on the note is reflected on the Company’s balance sheets as a long-term liability as at September 30, 2024. (1) 8% Convertible notes with warrants issued in December 2019 and February 2020 (cont’d) On February 19, 2020, we issued and sold in a private offering an 8% convertible note in the principal amount of $10,000. The note is due on February 19, 2022 and is convertible into shares of common stock at a conversion price per share equal to the lesser of: (a) $0.50; (b) the lowest price at which the Company has converted any convertible security of the Company within 30 trading days prior to the date of delivery of the applicable notice of conversion; or (c) such other price as the Company and the holder may agree. In connection with the 8% convertible note issuance, we issued warrants to purchase an aggregate of 10,000 shares of common stock at an exercise price of $1.00. The Company extended the maturity date to February 2023 upon initial maturity, and further extended the maturity date to February 2024 and subsequently, February 2026 under the same terms and conditions. The balance owing on the note is reflected on the Company’s balance sheets as a long-term liability as at September, 2024. The carrying value of these convertible notes is as follows: September 30, 2024 December 31, 2023 Face value of certain convertible notes, long-term $ 80,000 $ 80,000 Carrying value, long-term $ 80,000 $ 80,000 Interest expenses associated with the convertible notes are as follows: For Three Months Ended September 30, For Nine Months Ended September 30, 2024 2023 2024 2023 Interest on the convertible notes $ 1,613 $ 1,613 $ 4,804 $ 4,787 Total $ 1,613 $ 1,613 $ 4,804 $ 4,787 As of September 30, 2024, and December 31, 2023, the unpaid interest balance on the convertible notes under accounts payable and accrued liabilities was $30,473 and $25,669, respectively. The convertible notes qualify for derivative accounting and bifurcation under ASC 815. As of September 30, 2024, and December 31, 2023, the fair value of the derivative liability associated with the conversion feature is summarized as follows: Balance at December 31, 2023 $ 84,998 Change in fair value (44,670 ) Balance at September 30, 2024 $ 40,328 The convertible notes qualify for derivative accounting and bifurcation under ASC 815. As of September 30, 2023 and December 31, 2022, the fair value of the derivative liability associated with the conversion feature is summarized as follows: Balance at December 31, 2022 $ 57,033 Change in fair value 3,401 Balance at September 30, 2023 $ 60,434 (1) 8% Convertible notes with warrants issued in December 2019 and February 2020 (cont’d) At December 31, 2023, as a result of the extension to the maturity dates the derivative liability is reflected in long-term liabilities. The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of September 30, 2024, and December 31, 2023 and the commitment date: Commitment Date September 30, 2024 December 31, 2023 Expected dividends 0 0 0 Expected volatility 154%~173 % 112.30~114.58 % 170.40~224.62 % Expected term 2.10 years 1.33 ~ 1.47 years 2.08 ~ 2.22 years Risk free interest rate 1.42~1.65 % 3.98 % 4.23 % The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of September 30, 2023, and December 31, 2022, and the commitment date: Commitment Date September 30, 2023 December 31, 2022 Expected dividends 0 0 0 Expected volatility 154%~173 % 190%~228 % 194.20~201.98 % Expected term 2.10 years 0.33 ~ 0.47 years 1.08 ~ 1.22 years Risk free interest rate 1.42~1.65 % 5.55 % 4.41 % (2) 8% Convertible note with warrants issued on June 15, 2021 On June 15, 2021, the Company entered into a note purchase agreement with Quick Capital, LLC (“Quick Capital”) pursuant to which the Company issued a twelve-month convertible promissory note in the principal amount of $115,000 for a $100,000 investment (the “Quick Note”), which included an original issuance discount of 10% and a $3,500 credit for legal and transaction costs. In connection with the Quick Note issuance, Quick Capital was also issued a five-year warrant (the “Quick Warrant”) to purchase up to an aggregate of 115,000 shares of the Company’s common stock at an exercise price of $1.00 per share (the “Quick Warrant Shares”) subject to adjustments for dilutive issuances at lower prices. The Quick Note is convertible into shares of common stock at a conversion price of $0.50 per share. If delivery of the conversion shares is not timely made, the Company is obligated to pay Quick Capital $2,000 for each day that the delivery is late as liquidated damages. The conversion price of the Quick Note will be reduced if the Company issues common stock or grants derivative securities for consideration at a price less than the conversion price to the amount of the consideration of such dilutive issuance. The Quick Note may not be prepaid. The Company is subject to significant cash penalties if the Company defaults on the Quick Note or in the event shares are not issued in a timely manner when a notice of conversion is provided. If an event of default occurs, the Quick Note will become immediately due and payable in an amount equal to 150% of the then outstanding principal amount of the Quick Note plus any interest or amounts owing to Quick Capital. The default provisions are based on the type of default and include a penalty of 50% of the principal plus accrued interest due (the “Default Sum”) and a parity value of the Default Sum based on the effective conversion of the Quick Note on the date of payment of the default and the maximum stock value during the period between the default date and the payment date. (2) 8% Convertible note with warrants issued on June 15, 2021 (cont’d) As of June 15, 2022, the Quick Note and accrued interest totaling $124,200 was not repaid on maturity, constituting an event of default increasing the repayment value of the Quick Note to an amount equal to 150% of the principal balance and accrued interest outstanding, or $186,300. On December 7, 2022, the Company and Quick Capital amended the Quick Note to extend the maturity date thereof to June 15, 2023, and amended the Warrant maturity date to June 15, 2027. Further Quick Capital agreed to reduce the outstanding balance of the Quick Note from $186,300 to $150,000 in consideration for the issuance of 150,000 shares of unregistered, restricted common stock valued at $76,350. As of June 15, 2023, the Quick Note and accrued interest totaling $162,000 was not repaid on maturity, constituting an event of default increasing the repayment value of the note to an amount equal to 150% of the principal balance and accrued interest outstanding, or $243,000. On June 15, 2023, the Company and Quick Capital amended the Quick Note to extend the maturity date thereof to June 15, 2024, and amended the Warrant maturity date to June 15, 2028. Further Quick Capital agreed to reduce the outstanding balance of the Quick Note from $243,000 to $200,000 in consideration for the issuance of 150,000 shares of unregistered, restricted common stock valued at $52,500. The Quick Note and accrued interest totaling $16,000 was not repaid on maturity. On June 15, 2024, the Company and Quick Capital amended the Quick Note to extend the maturity date thereof to June 15, 2025 and amend the Warrant maturity date to June 15, 2029. Further, Quick Capital agreed to waive adjustments for dilutive issuances at lower prices until January 1, 2025. In consideration of the additional extension of the Maturity Date, the Company agreed to issue 300,000 shares of unregistered, restricted common stock valued at $55,644. The unpaid balance of the Quick Note continues to accrue interest at 8% per annum. The Company valued the embedded default derivative liability of the Quick Note and the Quick Warrant liability, including the full ratchet reset feature, using Monte Carlo models. The fair value of the Quick Note and Quick Warrant embedded default derivatives liability has been valued as of June 15, 2024 (amendment date) and December 31, 2023. As of June 15, 2024, the Company ended the derivative treatment. The carrying value of the Quick Note is as follows: September 30, 2024 December 31, 2023 Face value of Quick Note $ 200,000 $ 200,000 Interest payable added to principal 16,000 - Less: unamortized discount - (14,024 ) Carrying value $ 216,000 $ 185,976 Interest expenses associated with the conversion feature are as follows: For Three Months Ended September 30, For Nine Months Ended September 30, 2024 2023 2024 2023 Interest on Quick Note $ 4,355 $ 4,033 $ 12,342 $ 15,901 Default interest - - - 38,000 Amortization of debt discount - 7,015 14,024 27,789 Total $ 4,355 $ 11,048 $ 26,366 $ 81,690 (2) 8% Convertible note with warrants issued on June 15, 2021 (cont’d) As of September 30, 2024, and December 31, 2023, the unpaid interest balance of the Quick Note under accounts payable and accrued liabilities was $5,065 and $8,723, respectively. The loss related to extinguishment on June 15, 2024 is as follows: 300,000 shares of common stock issued $ 55,644 Extinguishment of derivative liability – convertible note (25,864 ) Gain on extinguishment of debt upon amendment to Quick Note terms $ 29,780 The loss related to extinguishment on June 15, 2023 is as follows: 150,000 shares of common stock issued $ 52,500 Extinguishment of derivative liability – convertible note (22,679 ) Unamortized debt discount 2,099 Derivative Liability associated with warrants 2,012 Loss on extinguishment of debt upon amendment to Quick Note terms $ 33,932 As a result of the application of ASC 815 as of June 15, 2024, the fair value of the derivative liability associated with the conversion feature is summarized as follows: Balance at December 31, 2023 $ 288,720 Change in fair value – convertible note (15,935 ) Change in fair value – warrants (13,556 ) Gain due to balance of derivative liability – convertible note (25,864 ) Contributed to additional paid in capital – balance of derivative liability - warrants (233,365 ) Balance at September 30, 2024 $ - As a result of the application of ASC 815 as of September 30, 2023 and December 31, 2022, the fair value of the derivative liability associated with the conversion feature is summarized as follows: Balance at December 31, 2022 $ 301,742 Extinguish – convertible note associated with amended (22,679 ) Debt discount, day one, amended convertible note payable 29,461 Derivative Liability associated with warrants 2,012 Change in fair value – convertible note 5,295 Change in fair value – warrants (22,751 ) Balance at September 30, 2023 $ 293,080 The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2023, the remeasurement date of June 15, 2024 and 2023, and the commitment date: (2) 8% Convertible note with warrants issued on June 15, 2021 (cont’d) Convertible note: Commitment Date Re-measurement Date (June 15, 2023) December 31, 2023 Re-measurement Date (June 15, 2024) Expected dividends 0 0 0 0 Expected volatility 307.10 % 95.60 % 176.9 % 65.10 % Expected term 1 year 1 years 0.46 year 0.50 year Risk free interest rate 0.18 % 4.83 % 4.78 % 4.99 % Warrants: Commitment Date Re-measurement Date (June 15, 2023) December 31, 2023 Re-measurement Date (June 15, 2024) Expected dividends 0 0 0 0 Expected volatility 201.70 % 207.50 % 210.80 % 208.80 % Expected term 5 years 5 years 4.46 years 4 years Risk free interest rate 0.65 % 4.53 % 4.53 % 4.80 % The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of September 30, 2023 and December 31, 2022 and the commitment date: Convertible note: Commitment Date December 31, 2022 September 30, 2023 Re-measurement Date (June 15, 2023) Expected dividends 0 0 0 0 Expected volatility 307.10 % 119.70 % 144.10 % 95.60 % Expected term 1 year 0.45 years 0.71 year 1 year Risk free interest rate 0.18 % 4.37 % 5.22 % 4.83 % Warrants: Commitment Date December 31, 2022 September 30, 2023 Re-measurement Date (June 15, 2023) Expected dividends 0 0 0 0 Expected volatility 201.70 % 219.10 % 217.00 % 207.50 % Expected term 5 years 4.45 years 4.71 years 5.00 years Risk free interest rate 0.65 % 4.27 % 5.07 % 4.53 % |