The accompanying notes are an integral part
of the condensed consolidated financial statements
The accompanying notes are an integral part
of the condensed consolidated financial statements
The accompanying notes are an integral part
of these consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 2019 and for the three and nine-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 nine-month periods ended
September 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 nine-month period ended September 30, 2019, the Company incurred a net loss of $3,291,723
had negative cash flows from operating activities, had a working capital deficit of $3,710,628. 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 reflects 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 September 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
|
|
|
1,235,703
|
|
|
|
87,012
|
|
|
|
1,322,715
|
|
Extinguishment/modification
|
|
|
(1,454,983
|
)
|
|
|
(910,308
|
)
|
|
|
(2,365,291
|
)
|
Conversion of note derivatives
|
|
|
631,941
|
|
|
|
(280,639
|
)
|
|
|
351,302
|
|
Change in fair value
|
|
|
47,901
|
|
|
|
(39,849
|
)
|
|
|
8,052
|
|
Derivative liability at September 30, 2019
|
|
$
|
2,444,390
|
|
|
$
|
99,770
|
|
|
$
|
2,544,160
|
|
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 nine-month periods ended September 30, 2019, the Company had 500,000 options and 142,971,500 warrants to purchase common
stock outstanding. In addition, the Company has various convertible notes payable which at September 30, 2019, are convertible
into approximately 4,823,409,335 shares of common stock. During the three and nine-month periods ended September 30, 2018, the
Company had 500,000 options and 255,771,846 warrants to purchase common stock outstanding. The effects of the dilutive
securities were anti-dilutive due to net loss during the nine-month periods ended September 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 $7,479 were recorded for
the three month and nine-month periods ended September 30, 2019, respectively. As of September 30, 2019, the carrying value
of the patent was $63,425. 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 September 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 $879 were recorded for the three and nine-month periods ended September 30, 2019,
respectively. As of September 30, 2019, the carrying value of the patent was $6,722. 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 $7,500 were recorded for the three
and nine-month periods ended September 30, 2019, respectively. As of September 30, 2019, the carrying value of the patent was
$77,500. 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 the event StemSpine commercializes the technology
via use of autologuous cells by a physician without a clinical trial, StemSpine has agreed to pay CMH $300,000. 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 September 30, 2019, amounts due to CMH under the arrangement were $0.
See Note 2 for discussion of an additional
related party transaction with CMH.
NOTE 4 – DEBT
$110,000 Convertible
Note
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 nine-month periods ended September 30, 2019, the Company amortized $0 and
$28,027 to interest expense respectively. As of September 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 September 30, 2019, there were 0 shares reserved with our transfer
agent with a potential of 205,041,021 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 nine-month periods ended September 30, 2019, the lender converted $67,345 of principal, interest and fees into 46,767,507 common
shares and $112,845 of principal, interest and fees into 66,723,648 common shares respectively.
$110,000 Convertible
Note
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 nine-month period ended September 30, 2019, the
Company amortized $0 and $30,438 to interest expense respectively. As of September 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 September 30, 2019, there were 22,722,974 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
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 nine-month periods ended September 30, 2019, the lender converted $48,240 of principal, interest and fees into 33,499,750 common
shares and $125,240 of principal, interest and fees into 62,447,118 common shares, respectively.
As of September
30, 2019, the Company had fulfilled all the obligations of this note.
$108,000 Convertible
Note
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 nine-month periods ended September 30, 2019 the Company amortized $0
and $39,649 to interest expense respectively. As of September 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 September 30, 2018, 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, 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 nine-month periods ended September 30, 2019, the lender converted $0 of principal, interest and fees into 0 common
shares and $94,826 of principal, interest and fees into 22,494,347 common shares respectively.
As of September
30, 2019, the Company had fulfilled all the obligations of this note.
$183,250 Convertible
Note
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 nine-month periods ended September 30, 2019 the Company amortized $0 and $132,040
to interest expense respectively. As of September 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 September 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.
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 nine-month periods ended September 30, 2019, the lender converted $0 of principal, interest and fees into 0 common
shares and $191,282 of principal, interest and fees into 38,606,150 common shares respectively.
As of September
30, 2019, the Company had fulfilled all the obligations of this note.
$183,250
Convertible Note
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 nine-month
periods ended September 30, 2019, the Company amortized $41,168 and $132,040 to interest expense respectively. As of
September 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 September 30, 2019, there were 11 shares
reserved with our transfer agent with a potential of 875,298,605 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 nine-month periods ended September 30, 2019, the lender converted $66,075 of principal, interest and fees into 98,586,106 common
shares and $103,075 of principal, interest and fees into 113,565,864 common shares respectively.
$183,250 Convertible
Note
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 nine-month
periods ended September 30, 2019 the Company amortized $41,168 and $132,040 to interest expense respectively. As of
September 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 September 30, 2019, there were 0 shares
reserved with our transfer agent with a potential of 1,683,165,057 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 nine-month periods
ended September 30, 2019, the lender converted $16,250 of principal, interest and fees into 25,000,000 common
shares.
$108,000 Convertible
Note
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 and other transaction-related expenses 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
nine-month periods ended September 30, 2019, the Company amortized $0 and $70,041 to interest expense respectively.
As of September 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 September 30, 2019, there were 46,189,234 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.
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 nine-month periods ended September 30, 2019, the lender converted $0 of principal, interest and fees into 0 common shares
and $112,267 of principal, interest and fees into 42,483,073 common shares respectively.
As of September
30, 2019, the Company had fulfilled all the obligations of this note.
$108,000
Convertible Note
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 and other transaction-related expenses 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
nine-month periods ended September 30, 2019 the Company amortized $24,522 and $60,506 to interest expense respectively.
As of September 30, 2019, a discount of $12,261 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 September 30, 2019, there were 0 shares
reserved with our transfer agent with a potential of 990,438,200 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
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 nine-month periods ended September
30, 2019 the Company amortized $36,783 and $72,767 to interest expense respectively. As of September 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 September 30, 2019, there were 7 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.
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 nine-month periods
ended September 30, 2019, the lender converted $114,409 of principal, interest and fees into 120,047,983 common
shares.
As of September 30, 2019, the Company had
fulfilled all the obligations of this note.
$168,300 Convertible
Note
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 nine-month periods ended September 30,
2019, the Company amortized $0 and $83,184 to interest expense respectively. As of September 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 September 30, 2019, there were 152,439,592 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
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 nine-month periods ended September
30, 2019, the Company amortized $75,806 and $129,295 respectively. As of September 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 September 30, 2019, there were 88,783,544 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.
During the three
and nine-month periods ended September 30, 2019, the lender converted $120,109 of principal, interest and fees into 105,683,673 common
shares and the Company paid down $25,811 of principal.
As of September
30, 2019, the Company had fulfilled all the obligations of this note.
Warrant Exchange
On February 28,
2019, the Company entered into three separate Exchange Agreements with the 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 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 accounted for the 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 September 30, 2019, there were 25,000,000 shares reserved with
our transfer agent with a potential of 1,464,079,309 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 nine-month periods ended September 30, 2019, the lenders converted $50,700 of principal, interest and fees into 130,000,000 common
shares and $153,034 of principal, interest and fees into 167,940,031 common shares respectively.
Note and Warrant
Purchase
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 nine-month periods ended September 30, 2019, the Company amortized $110,600 and $256,064 respectively.
As of September 30, 2019, a discount of $183,936 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 September 30, 2019, there were 130,000,000 shares
reserved with our transfer agent with a potential of 2,523,330,819 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.
During the three and nine-month periods
ended September 30, 2019, the lenders converted $119,724 of principal, interest and fees into 234,302,572 common
shares.
$91,300 Convertible Note
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 $60,762 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $71,762 to
interest expense using the straight-line method over the term of the loan. During the three- and nine-month periods ended September
30, 2019, the Company amortized $49,163 and $71,762 respectively. As of September 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 September 30, 2019, there were 8,360,418 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.
During the three and nine-month periods
ended September 30, 2019, the lenders converted $95,030 of principal, interest and fees into 126,781,478 common
shares.
As of September
30, 2019, the Company had fulfilled all the obligations of this note.
$133,000
Convertible Note
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 September 30,
2019 the Company amortized $33,432 and $37,066 respectively. As of September 30, 2019, a discount of $95,934 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 September 30, 2019, there were 20,151,000 shares
reserved with our transfer agent with a potential of 1,661,677,377 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.
$100,000 Convertible
Note and Warrant Purchase
On July 2, 2019,
the Company completed the sale of 8% Original Issue Discount Senior Convertible Notes and Common Stock Purchase Warrants to two
institutional investors pursuant to a Securities Purchase Agreement between the Company and the Investors dated as of July 2,
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 $50,000, each Investor purchased a Note in the principal amount of $54,000.00 and
a Warrant to purchase 5,555,555 shares of common stock. Each Note matures on June 27, 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.
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 $8,000, legal fees of $5,000 and
the remaining discount of $95,000 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 nine-month periods ended September 30, 2019, the Company amortized $26,850. As of September 30,
2019, a discount of $81,150 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 September 30, 2019, there were 0 shares
reserved with our transfer agent with a potential of 1,101,304,110 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 at the Holder’s discretion, (i) the conversion of the outstanding principal amount of this Note, plus all
accrued and unpaid interest, converted at the Conversion Price or (ii) the payment 135% of the outstanding principal amount of
this Note and accrued and unpaid interest hereon, in addition to, for both (i) and (ii), above, the payment of all other amounts,
costs, expenses and liquidated damages due in respect of this Note. Additionally, at the Holder’s discretion, upon the occurrence
of an Event of Default, without any further action on the part of the Company or the Holder, the Conversion Price shall be reduced
to an amount equivalent to fifty percent (50%) of the lowest traded price during the fifteen (15) Trading Days immediately prior
to the applicable Conversion Date.
Each Warrant
is exercisable for a five-year period at an initial exercise price of $0.0045 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.
$243,000 Convertible Notes and Warrant
Purchases
On July 29, 2019,
the Company completed the sale of 8% Original Issue Discount Senior Convertible Notes and Common Stock Purchase Warrants to three
institutional investors pursuant to a Securities Purchase Agreement between the Company and the Investors 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, each Investor purchased a Note in the principal amount of $81,000 and a Warrant
to purchase 4,807,695 shares of common stock. Each Note matures on July 28, 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.
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 $18,000, legal fees of $2,015 and
the remaining discount of $222,985 due to the recording of a derivative liability as discussed in Note 5. The Company
is amortizing the total discount of $243,000 to interest expense using the straight-line method over the term of the
loan. During the three- and nine-month periods ended September 30, 2019, the Company amortized $41,829. As of September 30,
2019, a discount of $201,171 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 September 30, 2019, there were 302,433,249 shares
reserved with our transfer agent with a potential of 2,463,553,973 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 at the Holder’s discretion, (i) the conversion of the outstanding principal amount of this Note, plus all
accrued and unpaid interest, converted at the Conversion Price or (ii) the payment 135% of the outstanding principal amount of
this Note and accrued and unpaid interest hereon, in addition to, for both (i) and (ii), above, the payment of all other amounts,
costs, expenses and liquidated damages due in respect of this Note. Additionally, at the Holder’s discretion, upon the occurrence
of an Event of Default, without any further action on the part of the Company or the Holder, the Conversion Price shall be reduced
to an amount equivalent to fifty percent (50%) of the lowest traded price during the fifteen (15) Trading Days immediately prior
to the applicable Conversion Date.
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.
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.
As of September 30, 2019, the Company
had fulfilled all the obligations of this note.
$69,300
Convertible Note
On August 22, 2019, the Company entered
into a convertible note agreement with a third party for an aggregate principal amount of $69,300, for which $63,000 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 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 5 times the number of common shares the convertible note is convertible into. The Company is amortizing
an on-issuance discount of $6,300, legal fees of $3,000 and the remaining discount of $60,000 due to the recording of
a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $69,300 to interest expense
using the straight-line method over the term of the loan. During the three- and nine-month periods ended September 30, 2019, the
Company amortized $7,384. As of September 30, 2019, a discount of $61,916 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 accounted for the 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 September 30, 2019, there were 25,000,000 shares reserved with our transfer agent with a potential of 984,399,614
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.
As of September 30, 2019, future loan maturities
are as follows:
For the year ended December 31,
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|
|
|
|
|
|
|
2019
|
|
|
504,990
|
|
2020
|
|
|
1,027,624
|
|
Total
|
|
$
|
1,532,614
|
|
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 nine months ended September
30, 2019, the Company recorded initial derivative liabilities of $1,322,715 based upon the following Black-Scholes option pricing
model average assumptions: an exercise price of $0.0007 to $0.0206 our stock price on the date of grant of $0.0007 to
$0.0185, expected dividend yield of 0%, expected volatility of 77% to 100%, risk free interest rate of 1.56% to 2.55% 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 $306,463, which was recorded as a day one loss in derivative liability.
On September 30, 2019, the derivative liabilities were revalued at $2,554,160 resulting in a loss of
$1,432,412 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 $0.0004 to $0.0250,
our stock price on the date of valuation ($0.0008), expected dividend yield of 0%, expected volatility of 93% to 100%, risk-free
interest rate of 1.56%, and an expected terms ranging from 0.5 to 4.8 years.
In connection
with convertible notes converted, as disclosed in Note 5, the Company reclassed derivative liabilities with a fair of $782,225
and $2,365,291 to additional paid-in capital for the three- and nine-month periods ended September 30, 2019 respectively. 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 September 30, 2019,
the Company’s convertible notes payable are potentially convertible into an aggregate of approximately 4.8 billion 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 September 2019,
the Company issued 129,575,745 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 September 30, 2019 were as follows:
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Weighted
Average
Inputs Used
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|
|
|
|
|
Annual dividend yield
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|
$
|
-
|
|
Expected life (years)
|
|
|
2.8 to 4.8
|
|
Risk-free interest rate
|
|
|
1.56
|
%
|
Expected volatility
|
|
|
94
|
%
|
Common stock price
|
|
$
|
0.0008
|
|
Since the expected life of the
warrants 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 September 30, 2019, are as follows:
Outstanding at December 31, 2018
|
|
|
142,075,119
|
|
Issuances
|
|
|
36,429,554
|
|
Exercises
|
|
|
(89,107,585
|
)
|
Anti-Dilution/Modification
|
|
|
68,828,703
|
|
Forfeitures/cancellations
|
|
|
(9,698,736
|
)
|
Outstanding at September 30, 2019
|
|
|
148,527,055
|
|
Weighted Average Price at September 30, 2019
|
|
$
|
0.0027
|
|
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:
On October 11, 2019, the Company completed
the sale of 8% Original Issue Discount Senior Convertible Notes (“Notes”) to three institutional investors pursuant
to a Securities Purchase Agreement between the Company and the investors. 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 an aggregate
purchase price of $275,000, the Investors purchased Notes in the aggregate principal amount of $297,000. Each Note matures on
October 11, 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.
The Purchase Agreement requires the Company
to file a preliminary information statement with the Securities and Exchange Commission within 30 days following the closing to
effect a reverse split of the Company’s Common Stock at a ratio of between one-for-25 and one-for-75, and to cause the Reverse
Split to become effective no later than December 30, 2019. In addition, the Notes are subject to covenants, events of defaults
and other terms and conditions customary in transactions of this nature.
Conversion Notice
During October and November of 2019, we issued 287,103,971 shares of common stock for the conversion of
$77,061 in convertible notes.