The accompanying notes are an integral part of the condensed consolidated financial statements
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JUNE 30, 2019
Introductory Comment
Unless otherwise indicated, any reference
to “our company”, “we”, “us”, or “our” refers to Creative Medical Technology Holdings,
Inc., and as applicable to its wholly owned subsidiary, Creative Medical Technologies, Inc., a Nevada corporation (“
CMT
”).
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization
-
Creative
Medical Technology Holdings, Inc., is considered to be a commercial stage company, following the commencement of sales of disposable
kits used in our Caverstem
®
procedure to treat ED in the fourth quarter of 2017 and sales of our FemCelz procedure
for vaginal rejuvenation that commenced in the second quarter of 2019. Our fiscal year end is December 31st. We have acquired the
licensing rights for our Amniostem amniotic-based stem cell, purchased the patent for our ED and lower back pain treatments, and
filed patent applications for our neurological treatments.
Use of Estimates
–
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Basis of Presentation
–
The accompanying unaudited condensed consolidated financial statements have been prepared without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of
operations and cash flows at June 30, 2019 and for the three and six-month periods then ended have been made. Certain information
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. The operations for the three and six-month periods ended
June 30, 2019, are not necessarily indicative of the operating results for the full year.
Going Concern
–
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However,
during the six-month period ended June 30, 2019, the Company incurred a net loss of $885,599 had negative cash flows from operating
activities, had a working capital deficit of $2,789,894. These factors raise substantial doubt about the ability of the Company
to continue as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by
operations through loans or through additional sales of equity securities. There is no assurance that the Company will be successful
in raising this additional capital or in achieving profitable operations. The unaudited condensed consolidated financial statements
do not include any adjustments that might result from the outcome of these uncertainties.
Revenue
- The Company recognizes
revenue as it is earned as defined by U.S. GAAP. We have adopted the new revenue recognition standards that went into effect on
January 1, 2018. All revenues reported in 2018 and beyond will reflect those standards.
Fair Value
of Financial Instruments
- The Company’s financial instruments consist of cash and cash equivalents,
convertible notes, and payables. The carrying amount of cash and cash equivalents and payables approximates fair value because
of the short-term nature of these items.
When determining
fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market
data is not available. As of June 30, 2019, and December 31, 2018, the Company didn’t have any Level 1 or 2 financial instruments.
The table below reflects the results of our Level 3 fair value calculations:
|
|
Notes
|
|
|
Warrants
|
|
|
Total
|
|
Derivative liability at December 31, 2018
|
|
$
|
1,983,828
|
|
|
$
|
1,243,554
|
|
|
$
|
3,227,382
|
|
Addition of new conversion option derivatives
|
|
|
752,195
|
|
|
|
31,116
|
|
|
|
783,311
|
|
Extinguishment/modification
|
|
|
(672,758
|
)
|
|
|
(910,308
|
)
|
|
|
(1,583,066
|
)
|
Conversion of note derivatives
|
|
|
(900,879
|
)
|
|
|
(180,231
|
)
|
|
|
(1,081,110
|
)
|
Change in fair value
|
|
|
77,987
|
|
|
|
(39,849
|
)
|
|
|
38,138
|
|
Derivative liability at June 30, 2019
|
|
$
|
1,240,373
|
|
|
$
|
144,282
|
|
|
$
|
1,384,655
|
|
Basic and Diluted Loss Per Share –
The Company follows Financial Accounting Standards Board (“FASB”) ASC 260 Earnings
per Share to account for earnings per share. Basic earnings per share (“EPS”) calculations are determined by dividing
net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share calculations
are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. During the
three and six-month periods ended June 30, 2019, the Company had 500,000 options and 48,608,602 warrants to purchase common stock
outstanding. In addition, the Company has various convertible notes payable which at June 30, 2019, are convertible into approximately
737,530,049 shares of common stock. During the three and six-month periods ended June 30, 2018, the Company had 500,000 options
and 76,968,929 warrants to purchase common stock outstanding. In addition, the Company has various convertible notes payable which
at June 30, 2018, are convertible into approximately 92,775,038 shares of common stock. The effects of the dilutive securities
were anti-dilutive due to net loss during the six-month periods ended June 30, 2019 and 2018.
Recent Accounting Pronouncements
–
In February 2016, the FASB issued ASU, Leases, which requires lessees to recognize most leases on their balance
sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged.
Additional qualitative and quantitative disclosures are also required. The Company adopted the standard effective January 1, 2019
using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without
adjusting the comparative periods presented. The Company adopted the following practical expedients and elected the following
accounting policies related to this standard update:
• The option to not reassess prior
conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior
to January 1, 2019
• Short-term lease accounting policy
election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and
• The option to not separate lease
and non-lease components for certain equipment lease asset categories such as freight car, vehicles and work equipment.
• The package of practical expedients
applied to all of its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii)
not reassessing the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for
any existing leases.
The Company has inventoried all leases
where the Company is a lessee as of the initial date of application and has examined other contracts with suppliers, vendors, customers
and other outside parties to identify whether such contracts contain an embedded lease as defined under the new guidance. The Company’s
lease population comprises an office, which is immaterial to the consolidated financial statements.
As a result of the above, the adoption
of ASC 842 did not have a material effect on the financial statements. The Company will review for the existence of embedded leases
in future agreements.
The Company has reviewed all recently issued,
but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position
or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its
financial statements other than disclosed above.
NOTE 2 – LICENSING AGREEMENTS
ED Patent
–
The
Company acquired a patent from CMH.
Amortization expense of $2,493 and $4,986 were recorded
for the three month and six-month periods ended June 30, 2019, respectively.
As of June 30, 2019, the carrying value of
the patent was $65,917. The Company expects to amortize approximately $9,972 annually through 2026 related to the patent costs.
Multipotent Amniotic Fetal Stem Cells
License Agreement -
In August 2016, CMT entered into a License Agreement with a University. This license agreement grants
to CMT the exclusive right to all products derived from a patent for use of multipotent amniotic fetal stem cells composition of
matter throughout the world during the period ending on the expiration date of the longest-lived patent rights under the patent.
CMT paid the University an initial license fee within 30 days of entering into the agreement. CMT is also required to pay annual
license maintenance fees on each anniversary date of the agreement, which maintenance fees would be credited toward any earned
royalties for any given period. The License Agreement provides for payment of various milestone payments and earned royalties on
the net sales of licensed products by CMT or any sub licensee. CMT is also required to reimburse the University for any future
costs associated with maintaining the patent. CMT may terminate the license agreement for any reason upon 90 days’ written
notice and the University may terminate the agreement in the event CMT fails to meet its obligations set forth therein, unless
the breach is cured within 30 days of the notice from the University specifying the breach. CMT is also obligated to indemnify
the University against claims arising due to the exercise of the license by CMT or any sub licensee. As of June 30, 2019, no amounts
are currently due to the University.
The Company
estimates that the patent expires in February 2026 and has elected to amortize the patent through the period of expiration on
a straight-line basis. Amortization expense of $293 and $586 were recorded for the three and six-month periods ended June 30,
2019
, respectively.
As of June 30, 2019, the carrying value of the patent was $7,014.
The Company expects to amortize approximately $1,172 annually through 2026 related to the patent costs.
Lower Back Patent
–
The Company, through a newly created subsidiary of CMT, StemSpine, LLC, acquired a patent from CMH,
a related company, on May 17, 2017, for $100,000, payable in cash or stock. The patent expires on May 19, 2027 and the Company
has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expense of $2,500 and $5,000
were recorded for the three and six-month periods ended June 30, 2019, respectively. As of June 30, 2019, the carrying value of
the patent was $80,000. The company expects to amortize approximately $10,000 annually through 2027 related to the patent costs.
For a period of five years from the date
of the first sale of any product derived from the patent, StemSpine is required to make royalty payments of 5% from gross sales
of products. StemSpine has also agreed to pay royalties of 50% of sale price or ongoing payments from third parties for licenses
granted under the patent to third parties. In addition, StemSpine has agreed to make progress payments under the patent purchase
agreement determined by whether the technology represented by the patent is tested by use of autologous cells or allogenic cells.
In the case of pursuit of the technology using autologous cells, StemSpine has agreed to pay CMH $100,000 upon the signing of an
agreement with a university for the initiation of an IRB clinical trial and $200,000 upon completion of the clinical trial. In
the event StemSpine determines to pursue the technology using allogenic cells, StemSpine has agreed to pay CMH $100,000 upon the
filing for an innovative new drug application (IND) with the FDA; $200,000 upon the dosing of the first patient in Phase 1-2 clinical
trial; and $400,000 upon the dosing of the first patient in Phase 3 clinical trial. In each case StemSpine has the option to make
these payments in cash or in shares of the Company’s common stock at a discount to the market price of the stock at the time
of the transaction. The parties to the patent purchase agreement have agreed that in no event will the aggregate royalty payments
under the agreement exceed $2,500,000.
NOTE 3 – RELATED PARTY TRANSACTIONS
The Company
has incurred a monetary obligation to a related corporation to reimburse the cost of services provided to the Company (management
and consulting) through March 31, 2020. Each of the Company’s executive officers is employed by the parent company, CMH,
and will continue to receive his or her salary or compensation from CMH. The Company has an agreement with CMH which obligates
the Company to reimburse CMH $45,000 per month for such services. The compensation paid by CMH will include an allocation of services
performed for CMH and for the Company. The amounts are presented as a “management fee payable - related party” on
the accompanying unaudited condensed consolidated balance sheets. The liability is non-interest bearing, unsecured, and will be
due upon the Company successfully raising at least $1,000,000 through the sale of equity. At the option of CMH, the reimbursable
amounts set forth in the Agreement may be paid from time to time in shares of common stock of the Company at a price equal to
a 30% discount to the lowest closing price during the 20 trading days prior to time the notice is given. The Agreement may be
terminated by either party upon 30 days’ prior written notice. As of June 30, 2019, amounts due to CMH under the arrangement
were $18,082.
See Note 2 for discussion of an additional
related party transaction with CMH.
NOTE 4 – DEBT
$110,000 Convertible
Note – Morningview – Note 22
On
April 3, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $110,000,
for which $95,000 in proceeds were received on April 3, 2018. Under the terms of the agreement, the convertible note incurs interest
at 10% per annum and has a maturity date of April 1, 2019. The convertible note is convertible upon issuance and convertible into
shares of the Company’s stock at a conversion price equal to 60% of the lowest traded price of the Company’s common
stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares
of the Company’s common stock equal to 5 times the number of common shares the convertible note is convertible into. The
Company is amortizing legal fees of $2,652 and the remaining discount of $107,348 due to the recording of a derivative liability
as discussed in Note 5. The Company is amortizing the total discount of $110,000 to interest expense using the straight-line method
over the term of the loan. During the three and six-month periods ended June 30, 2019, the Company amortized $904 and $28,027 to
interest expense respectively. As of June 30, 2019, a discount of $0 remained. At no additional cost, we issued to the
note holder 11,000,000 five-year warrants to purchase common stock at $0.01, subject to adjustment if we issue securities at less
than the exercise price. The warrants are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion
price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible
note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock price and additional
dilution of current shareholders may take place. As of June 30, 2019, there were 88,657,994 shares reserved with our
transfer agent with a potential of 159,164,772 being reserved if and when the lender issues a request to our transfer agent.
In the event
of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 18%.
The Company has
the option to redeem the convertible notes within 180 days from the date of issuance at 140% of the principal and interest. After
180 days the right of prepayment expires.
During
the three and six-month period ended June 30, 2019, the lender converted $45,500 of principal, interest and fees into 19,956,141 common
shares.
$110,000
Convertible Note – Fourth Man – Note 23
On
April 11, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of
$110,000, for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 10% per annum and has a maturity 12 months from the effective date of payment. The convertible note is convertible upon issuance
and convertible into shares of the Company’s stock at a conversion price equal to 60% of the lowest trading price of the
Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at all
times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible note
is convertible into. The Company is amortizing an on-issuance discount of $10,000 and the remaining discount of $100,000 due to
the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $110,000 to interest
expense using the straight-line method over the term of the loan. During the three and six-month period ended June 30, 2019, the
Company amortized $3,315 and $30,438 to interest expense respectively. As of June 30, 2019, a discount of $0 remained.
At no additional cost, we issued to the note holder 11,000,000 five-year warrants to purchase common stock at $0.01, subject to
adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 56,222,724 shares
reserved with our transfer agent with a potential of 56,796,351 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 18%.
The
Company has the option to redeem the convertible notes within 180 days from the date of issuance at 140% of the principal and
interest. After 180 days the right of prepayment expires.
During
the three and six-month periods ended June 30, 2019, the lender converted $77,000 of principal, interest and fees into 28,947,368 common
shares.
$108,000 Convertible
Note – Global – Note 25
On
May 14, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $108,000,
for which $94,960 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per
annum and has a maturity date of May 14, 2019. The convertible note is convertible upon issuance and convertible into shares of
the Company’s stock at a conversion price equal to 60% of the lowest trading price of the Company’s common stock during
the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s
common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing
an on-issuance discount of $8,000, legal fees of $5,040 and the remaining discount of $94,960 due to the recording of a derivative
liability as discussed in Note 5. The Company is amortizing the total discount of $108,000 to interest expense using the straight-line
method over the term of the loan. During the three and six-month periods ended June 30, 2019 the Company amortized $13,019
and $39,649 to interest expense respectively. As of June 30, 2019, a discount of $0 remained. At no additional
cost, we issued to the note holder 3,600,000 five-year warrants to purchase common stock at $0.025, subject to adjustment if we
issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2018, there were 41,244,678 shares
reserved with our transfer agent with a potential of 0 being reserved if and when the lender issues a request to our
transfer agent.
In
the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 24%.
There
is no option to pre-pay this note.
During
the three and six-month periods ended June 30, 2019, the lender converted $24,826 of principal, interest and fees into 5,827,680 common
shares and $94,826 of principal, interest and fees into 22,494,347 common shares respectively.
$183,250
Convertible Note – Global – Note 28
On
September 20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount
of $183,250, for which $100,000 in proceeds were received and the remaining balances of two convertible notes were rolled over.
At the time of combination, the total carrying amount outstanding under the prior notes was $211,570. In connection, with the
agreement, the lender was paid $139,352, principal of $69,676 rolled into the new note and a gain of $2,542 was recorded within
interest expense. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date
of September 20, 2019. The convertible note is convertible at any time after 31 days after the closing date and convertible into
shares of the Company’s stock at a conversion price equal to 65% of the lowest trading price of the Company’s common
stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares
of the Company’s common stock equal to three times the number of common shares the convertible note is convertible into.
The Company is amortizing an on-issuance discount of $13,574 and the remaining discount of $169,676 due to the recording of a
derivative liability as discussed in Note 5. The Company is amortizing the total discount of $183,250 to interest expense using
the straight-line method over the term of the loan. During the three and six-month periods ended June 30, 2019 the Company amortized $45,185 and
$132,040 to interest expense respectively. As of June 30, 2019, a discount of $0 remained. At no additional cost, we
issued to the note holder 1,247,618 five-year warrants to purchase common stock at $0.088, subject to adjustment if we issue securities
at less than the exercise price. The warrants are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 0 shares reserved
with our transfer agent with a potential of 0 being reserved if and when the lender issues a request to our transfer agent.
In the event of
default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or (C)
paid in full, whichever is lowest, multiplied by the volume weighted average price (VWAP) on the date the Mandatory Default Amount
is either (x) demanded, (y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of
this Note, plus, (b) all other amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company has
the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees or
pre-payment penalties. After 30 days the right of prepayment expires.
During
the three and six-month periods ended June 30, 2019, the lender converted $92,308 of principal, interest and fees into 21,668,506 common
shares and $183,933 of principal, interest and fees into 38,606,150 common shares respectively.
As
of June 30, 2019, the Company had fulfilled all the obligations of this note.
$183,250
Convertible Note – Morningview – Note 29
On
September 20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount
of $183,250, for which $169,676 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 8% per annum and has a maturity date of September 20, 2019. The convertible note is convertible at any time after 31 days after
the closing date and convertible into shares of the Company’s stock at a conversion price equal to 65% of the lowest trading
price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required
at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $13,574, legal fees of $8,363 and the remaining
discount of $161,313 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total
discount of $183,250 to interest expense using the straight-line method over the term of the loan. During the three and six-month
periods ended June 30, 2019, the Company amortized $41,687 and $90,872 to interest expense respectively. As of June
30, 2019, a discount of $41,168 remained. At no additional cost, we issued to the note holder 1,247,618 five-year warrants
to purchase common stock at $0.088, subject to adjustment if we issue securities at less than the exercise price. The warrants
are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 10,020,242 shares
reserved with our transfer agent with a potential of 191,522,559 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise
due, or (C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The
Company has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount,
fees or pre-payment penalties. From 31 through 170 days, the Company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
During
the three and six-month periods ended June 30, 2019, the lender converted $37,000 of principal, interest and fees into 14,979,758 common
shares.
$183,250
Convertible Note – Fourth Man – Note 30
On
September 20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount
of $183,250, for which $169,676 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 8% per annum and has a maturity date of September 20, 2019. The convertible note is convertible at any time after 31 days after
the closing date and convertible into shares of the Company’s stock at a conversion price equal to 65% of the lowest trading
price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required
at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $13,574, legal fees of $8,363 and the remaining
discount of $161,313 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total
discount of $183,250 to interest expense using the straight-line method over the term of the loan. During the three and six-month
periods ended June 30, 2019 the Company amortized $45,687 and $90,872 to interest expense respectively. As of June 30,
2019, a discount of $42,082 remained. At no additional cost, we issued to the note holder 1,247,618 five-year warrants
to purchase common stock at $0.088, subject to adjustment if we issue securities at less than the exercise price. The warrants
are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 25,000,000 shares
reserved with our transfer agent with a potential of 236,717,923 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise
due, or (C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The
Company has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount,
fees or pre-payment penalties. From 31 through 170 days, the Company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
$108,000
Convertible Note – Armada – Note 31
On
November 15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount
of $108,000, for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 8% per annum and has a maturity date of November 15, 2019. The convertible note is convertible at any time after 31 days after
the closing date and convertible into shares of the Company’s stock at a conversion price equal to 70% of the lowest trading
price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required
at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $19,065 and the remaining discount of $74,579 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $93,644 to
interest expense using the straight-line method over the term of the loan. During the three and six-month periods ended June 30,
2019, the Company amortized $58,752 and $70,041 to interest expense respectively. As of June 30, 2019, a discount of $0 remained.
At no additional cost, we issued to the note holder 1,985,294 five-year warrants to purchase common stock at $0.0272, subject
to adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 195,407,334 shares
reserved with our transfer agent with a potential of 0 being reserved if and when the lender issues a request to our transfer
agent.
In
the event of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise
due, or (C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The
Company has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount,
fees or pre-payment penalties. From 31 through 170 days, the company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
During
the three and six-month periods ended June 30, 2019, the lender converted $112,267 of principal, interest and fees into 42,483,073 common
shares.
As of June 30,
2019, the Company had fulfilled all the obligations of this note.
$108,000
Convertible Note – Morningview – Note 32
On
November 15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount
of $108,000, for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 8% per annum and has a maturity date of November 15, 2019. The convertible note is convertible at any time after 31 days after
the closing date and convertible into shares of the Company’s stock at a conversion price equal to 70% of the lowest trading
price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required
at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $14,040 and the remaining discount of $83,249 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $97,289 to
interest expense using the straight-line method over the term of the loan. During the three and six-month periods ended June 30,
2019 the Company amortized $24,256 and $35,984 to interest expense respectively. As of June 33, 2019, a discount of $36,783 remained.
At no additional cost, we issued to the note holder 1,985,294 five-year warrants to purchase common stock at $0.0272, subject
to adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 15,000,000 shares
reserved with our transfer agent with a potential of 137,700,449 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise
due, or (C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The
Company has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount,
fees or pre-payment penalties. From 31 through 170 days, the company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
$108,000
Convertible Note – Fourth Man – Note 33
On
November 15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount
of $108,000, for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 7% per annum and has a maturity date of November 15, 2019. The convertible note is convertible at any time after 31 days after
the closing date and convertible into shares of the Company’s stock at a conversion price equal to 70% of the lowest trading
price of the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required
at all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $14,040 and the remaining discount of $83,249 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $97,289 to
interest expense using the straight-line method over the term of the loan. During the three and six-month periods ended June 31,
2019 the Company amortized $24,256 and $35,984 to interest expense respectively. As of June 30, 2019, a discount of $36,783 remained.
At no additional cost, we issued to the note holder 1,985,294 five-year warrants to purchase common stock at $0.0272, subject
to adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 35,000,000 shares
reserved with our transfer agent with a potential of 137,700,449 being reserved if and when the lender issues a request to
our transfer agent.
In the event of
default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or (C)
paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded, (y)
due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all other
amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company has
the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees or
pre-payment penalties. From 31 through 170 days, the company has the option to redeem the note at the default amount stated above.
After 170 days the right of prepayment expires.
$168,300 Convertible
Note – Power Up – Note 34
On
November 15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount
of $168,300, for which $150,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 10% per annum and has a maturity date of April 1, 2019. The convertible note is convertible upon issuance and convertible into
shares of the Company’s stock at a conversion price equal to 71% of the average of the 2 lowest trading prices of the Company’s
common stock during the previous 15 trading days preceding the conversion date. The Company is required at all times to reserve
shares of the Company’s common stock equal to 6 times the number of common shares the convertible note is convertible into.
The Company is amortizing an on-issuance discount of $15,300, legal fees of $3,000 and the remaining discount of $92,917 due to
the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $111,217 to interest
expense using the straight-line method over the term of the loan. During the three and six-month periods ended June 30, 2019,
the Company amortized $83,184 to interest expense. As of June 30, 2019, a discount of $0 remained.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were 126,422,535 shares reserved
with our transfer agent with a potential of 0 being reserved if and when the lender issues a request to our transfer agent.
In
the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 22%.
The
Company has the option to redeem the convertible notes within 30 days from the date of issuance at 100% of the principal and interest;
between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the
date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal
and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to
180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
On
January 18, 2019 the Company retired the note with a payment of $187,484 to the note holder. A derivative liability
gain of $59,519 and a premium loss of $19,154 were recorded to reflect the retirement of the loan.
$140,800
Convertible Note – Power Up – Note 43
On
January 30, 2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $140,800,
for which $125,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 10% per annum and has a maturity date of January 1, 2020. The convertible note is convertible upon issuance and convertible
into shares of the Company’s stock at a conversion price equal to 71% of the 2 lowest trading prices of the Company’s
common stock during the previous 15 trading days preceding the conversion date. The Company is required at all times to reserve
shares of the Company’s common stock equal to 6 times the number of common shares the convertible note is convertible into.
The Company is amortizing an on-issuance discount of $12,800, legal fees of $3,000 and the remaining discount of $113,495 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $129,295 to
interest expense using the straight-line method over the term of the loan. During the three and six-month periods ended June 30,
2019, the Company amortized $32,235 and $53,489 respectively. As of June 30, 2019, a discount of $75,806 remained.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 169,467,217 shares
reserved with our transfer agent with a potential of 347,565,788 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 22%.
The
Company has the option to redeem the convertible notes within 30 days from the date of issuance at 100% of the principal and interest;
between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the
date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal
and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to
180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
Warrant
Exchange – Armada/Morningview/Fourth Man - Loans 35 – 37
On
February 28, 2019, the Company” entered into three separate Exchange Agreements (each, an “Exchange Agreement”)
with the holders (the “Warrant Holders”) of Common Stock Purchase Warrants issued by the Company in September 2018
and November 2018. Under each Exchange Agreement, the Company issued a convertible promissory note in the principal amount of
$100,000 (an “Exchange Note”) to the Warrant Holder party to such Exchange Agreement in exchange for the cancellation
of Common Stock Purchase Warrants held by such Warrant Holder, initially exercisable for an aggregate of 3,232,912 shares of the
Company’s common stock. The exchanges were effected pursuant to Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933,
as amended and Rule 506(b) promulgated thereunder. The Company is required at all times to reserve shares of the Company’s
common stock equal to 3 times the number of common shares the convertible note is convertible into.
Each
Exchange Note matures on February 28, 2020, bears interest at a rate of 8% per annum, and beginning 31 days after the closing
date, is convertible into shares of the Company’s common stock at a conversion price equal to 65% of the Market Price of
the common stock. “Market Price” as defined in each Exchange Note means the average of the two lowest “VWAPs”
(as defined) of the Company’s common stock during the 15 trading days preceding the applicable conversion date.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 70,000,000 shares
reserved with our transfer agent with a potential of 249,410,460 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise
due, or (C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The
Company has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount,
fees or pre-payment penalties. From 31 through 170 days, the company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
During
the three and six-month periods ended June 30, 2019, a lender converted $102,334 of principal, interest and fees into 37,940,031 common
shares.
Note
and Warrant Purchase – Armada/Morningview/Fourth Man/BHP – Notes 38 - 41
On
March 1, 2019, the Company completed the sale of Convertible Notes (“Notes”) and Common Stock Purchase Warrants (“Warrants”)
to four institutional investors (the “Investors”) pursuant to a Securities Purchase Agreement between the Company
and the Investors (the “Purchase Agreement”) dated as of February 19, 2019. The transaction was effected pursuant
to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder.
Pursuant
to the Purchase Agreement, for a purchase price of $100,000, each Investor purchased a Note in the principal amount of $110,000
and a Warrant to purchase 1,334,951 shares of common stock. Each Note matures on March 1, 2020, bears interest at a rate of 8%
per annum, and beginning 31 days after the closing date, is convertible into shares of the Company’s common stock at a conversion
price equal to 65% of the Market Price of the common stock. “Market Price” as defined in each Exchange Note means
the average of the two lowest “VWAPs” (as defined) of the Company’s common stock during the 15 trading days
preceding the applicable conversion date. In addition, the Notes are subject to covenants, events of defaults and other terms
and conditions customary in transactions of this nature.
The
Company is required at all times to reserve shares of the Company’s common stock equal to 3 times the number of common shares
the convertible note is convertible into. The Company is amortizing an on-issuance discount of $40,000, legal fees of $29,110 and
the remaining discount of $370,890 due to the recording of a derivative liability as discussed in Note 5. The Company
is amortizing the total discount of $440,000 to interest expense using the straight-line method over the term of the
loan. During the three- and six-month periods ended June 30, 2019, the Company amortized $109,399 and $145,464 respectively.
As of June 30, 2019, a discount of $294,536 remained.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 169,467,217 shares
reserved with our transfer agent with a potential of 347,565,788 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise
due, or (C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
Each
Warrant is exercisable for a five-year period at an initial exercise price of $0.0206 per share, subject to anti-dilution adjustment
in the event of stock dividends, stock splits and other specified events.
$140,800
Convertible Note – Power Up – Note 42
On
March 8, 2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $91,300,
for which $80,300 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 12% per annum and has a maturity date of March 8, 2020. The convertible note is convertible upon issuance and convertible
into shares of the Company’s stock at a conversion price equal to 71% of the 2 lowest trading prices of the Company’s
common stock during the previous 15 trading days preceding the conversion date. The Company is required at all times to reserve
shares of the Company’s common stock equal to 6 times the number of common shares the convertible note is convertible into.
The Company is amortizing an on-issuance discount of $8,300, legal fees of $2,700 and the remaining discount of $118,295 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $129,295 to
interest expense using the straight-line method over the term of the loan. During the three- and six-month periods ended June
30, 2019, the Company amortized $18,040 and $22,599. As of June 30, 2019, a discount of $106,696 remained.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 102,873,239 shares
reserved with our transfer agent with a potential of 227,322,873 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 22%.
The
Company has the option to redeem the convertible notes within 30 days from the date of issuance at 100% of the principal and interest;
between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the
date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal
and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to
180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
$133,000
Convertible Note – GS – Note 44
On
June 20, 2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $133,000,
for which $114,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest
at 11% per annum and has a maturity date of June 20, 2020. The convertible note is convertible upon issuance and convertible
into shares of the Company’s stock at a conversion price equal to 66% of the lowest traded price of the Company’s
common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve
shares of the Company’s common stock equal to 4 times the number of common shares the convertible note is convertible into.
The Company is amortizing an on-issuance discount of $13,000 legal fees of $6,000 and the remaining discount of $114,000 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $133,000 to
interest expense using the straight-line method over the term of the loan. During the three and six months ended June 30, 2019
the Company amortized $3,634. As of June 30, 2019, a discount of $129,366 remained.
The
conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure may be put on the Company’s stock
price and additional dilution of current shareholders may take place. As of June 30, 2019, there were 20,151,000 shares
reserved with our transfer agent with a potential of 216,033,720 being reserved if and when the lender issues a request to
our transfer agent.
In
the event of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 24%.
The
Company has the option to redeem the convertible notes within 60 days from the date of issuance at 120% of the principal and interest;
between 61 and to 120 days from the date of issuance at 130% of the principal and interest; between 121 and to 180 days from the
date of issuance at 140% of the principal and interest; and after 180 days the right of prepayment expires.
As of June 30, 2019, future loan maturities
are as follows:
For the year ended December 31,
|
|
|
|
|
|
|
|
2019
|
|
|
640,642
|
|
2020
|
|
|
1,005,100
|
|
Total
|
|
$
|
1,645,742
|
|
NOTE 5 – DERIVATIVE
LIABILITIES
Derivative
Liabilities
In
connection with convertible notes payable, the Company records derivative liabilities for the conversion feature. In addition,
the Company has warrants for which the exercise prices reset upon future events. These warrants are also considered to be derivative
liabilities. The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at
each reporting period. The warrants are valued on the date of issuance and revalued at each reporting period. During the six months
ended June 30, 2019, the Company recorded initial derivative liabilities of $783,311 based upon the following Black-Scholes
option pricing model average assumptions: an exercise price of $0.00126 to $0.025 our stock price on the date of grant
of $0.0029 to $0.0185 , expected dividend yield of 0%, expected volatility of 86% to 195% , risk free interest
rate of 2.03% to 2.63% and expected terms ranging from 1.0 to 5.0 years. Upon initial valuation, the derivative liabilities
exceeded the face values certain of the convertible notes payable by approximately $124,464, which was recorded as a day one loss
in derivative liability.
On
June 30, 2019, the derivative liabilities were revalued at $1,384,655 resulting in a loss of $702,785 related to the change in
fair market value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing
model with the following average assumptions: an exercise price of $0.0008 to $0.025, our stock price on the date of valuation
($0.0039), expected dividend yield of 0%, expected volatility of 88% to 195%, risk-free interest rate of 1.92%, and an expected
terms ranging from 0.5 to 4.7 years.
In
connection with convertible notes converted, as disclosed in Note 5, the Company reclassed derivative liabilities with a fair
of $564,818 to additional paid-in capital. The Company revalued the derivative liabilities at each conversion date recording the
pro-rata portion of the derivative liability as compared to the portion of the convertible note converted to the pre-conversion
carrying value to additional paid-in capital
Future Potential
Dilution
Most
of the Company’s convertible notes payable contain adjustable conversion terms with significant discounts to market. As
of June 30, 2019, the Company’s convertible notes payable are potentially convertible into an aggregate of approximately
93 million shares of common stock. In addition, due to the variable conversion prices on some of the Company’s convertible
notes, the number of common shares issuable is dependent upon the traded price of the Company’s common stock.
NOTE 6 – WARRANTS
From March 2017 through May 2018, the Company
issued 78,526,087 warrants to multiple parties associated with the issuance of convertible notes. The issued warrants expire 5
years from the date of issuance and have anti-dilution and re-pricing features.
The fair value of each warrant is estimated
using the Black-Scholes valuation model. Assumptions used in calculating the fair value at June 30, 2019 were as follows:
|
|
Weighted
Average
Inputs Used
|
|
|
|
|
|
Annual dividend yield
|
|
$
|
-
|
|
Expected life (years)
|
|
|
3.1 to 4.7
|
|
Risk-free interest rate
|
|
|
1.92
|
%
|
Expected volatility
|
|
|
85
|
%
|
Common stock price
|
|
$
|
0.0039
|
|
Since the expected life of the options
was greater than the Company’s historical stock information available, the Public Company determined the expected volatility
based on price fluctuations of comparable public companies.
The issuances, exercises and pricing re-sets during the six
months ended June 30, 2019, are as follows:
Outstanding at December 31, 2018
|
|
|
142,075,119
|
|
Issuances
|
|
|
5,339,804
|
|
Exercises
|
|
|
(89,107,585
|
)
|
Anti-Dilution/Modification
|
|
|
0
|
|
Forfeitures/cancellations
|
|
|
(9,698,736
|
)
|
Outstanding at June 30, 2019
|
|
|
48,608,602
|
|
Weighted Average Price at June 30, 2019
|
|
$
|
0.0042
|
|
NOTE 7 – SUBSEQUENT EVENTS
In accordance with ASC 855, management
reviewed all material events through August 13, 2019, for these financial statements and there are no material subsequent events
to report, except as follows:
Institutional Sale of Notes and
Warrants
On July 29, 2019, Creative Medical
Technology Holdings, Inc. (the “Company”) completed the sale of 8% Original Issue Discount Senior Convertible Notes
(“Notes”) and Common Stock Purchase Warrants (“Warrants”) to three institutional investors (the “Investors”)
pursuant to a Securities Purchase Agreement between the Company and the Investors (the “Purchase Agreement”) dated
as of July 29, 2019. The transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule
506(b) promulgated thereunder.
Pursuant to the Purchase Agreement,
for a purchase price of $75,000.00, each Investor purchased a Note in the principal amount of $81,000.00 and a Warrant to purchase
4,807,695 shares of common stock. Each Note matures on July 83, 2020, bears interest at a rate of 8% per annum, and is convertible
into shares of the Company’s common stock at a conversion price equal to 60% of the lowest traded price of the Company’s
common stock during the 15 trading days preceding the applicable conversion date. In addition, the Notes are subject to covenants,
events of defaults and other terms and conditions customary in transactions of this nature.
Each Warrant is exercisable for a five-year
period at an initial exercise price of $0.0039 per share, subject to anti-dilution adjustment in the event of future sales of equity
by the Company below the then exercise price, stock dividends, stock splits and other specified events.
The information set forth above is
qualified in its entirety by reference to the actual terms of the Purchase Agreement, the Notes and the Warrants, which are attached
hereto as Exhibits 10.1, 4.1 and 4.2, respectively, and which are incorporated herein by reference.
CEO Advance
On July 24, 2019, Timothy Warbington,
the Company’s Chief Executive Officer, made an unsecured loan to the Company in the principal amount of $50,000. The loan
is payable on the earlier of demand and July 23, 2020, and bears interest at the rate of 2.13% per annum.
Conversion Notice
During July and August of 2019, we issued
272164,599 shares of common stock for the conversion of $209,485 in convertible notes.