NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
Note
1 – description of business
KinerjaPay
Corp. (the “Company”) is a Delaware corporation, was incorporated under the laws of the State of Delaware on February
12, 2010 as Solarflex Corp. On December 1, 2015, the Company entered into a license agreement with P.T.
Kinerja Indonesia (“P.T. Kinerja” the “Licensor”),
an entity organized under the laws of Indonesia and controlled by Mr. Edwin Ng, our
chairman, CEO and control stockholder, for an exclusive, world- wide license to use and commercially exploit certain technology
and intellectual property and its website, KinerjaPay.com. Pursuant to the License Agreement, the Company, as Licensee, was granted
the exclusive, world-wide rights to the KinerjaPay IP, an e-commerce platform that
provides users with the convenience of e-wallet service for bill transfer and online shopping and is among the first portals to
allow users the convenience to top-up phone credit. In conjunction with this agreement, the Company changed its name from Solarflex
Corp. to KinerjaPay Corp. On April 6, 2016, P.T. Kinerja Pay Indonesia, a wholly-owned
subsidiary of the Company, was organized under the laws of Indonesia.
On
August 31, 2018, the Company completed its acquisition of its licensor P.T. Kinerja
which became a wholly-owned subsidiary of the Company (Note 3). The result of this acquisition enabled the Company to present
its revenue on a gross basis as the principal going forward. Upon the closing of the acquisition of the Licensor by the Licensee,
the License Agreement effectively ceased. In addition, the acquisition gave the Company the ability to consolidate its IP technology
and manage its 1,500 square-feet data center located in North Sumatra which the Company plans to expand to provide cloud computing
services as well as data mining from the Company’s existing customer base. The Company believes that the acquisition will
make the Company more cost efficient and potentially generate more revenues from other IT services.
On
September 13, 2018, the Company incorporated P.T. Kinerja Simpan Pinjam, a new wholly-owned subsidiary, for the purpose of managing
its KFUND brand as a peer-to-peer (P2P) lending platform focusing on micro-lending activities. The Company plans to develop the
KFUND brand mainly targeting the consumer sector to facilitate micro loans ranging from $100 to $1,000 on biweekly or monthly
term. KFUND is still in preparation stage but the Company expects to start operations of KFUND as its cash flow improves, in or
about the first half of 2021.
As
one of Indonesia’s fintech P2P lending companies, P.T. Kinerja SP is subject to supervision by the Financial Service Authority
(Otoritas Jasa Keuangan – “OJK”) of Indonesia. OJK requested PT KSP to change its company name to comply with
a recently issued regulation that states that a P2P company may not have the word “simpan” (meaning to save or to
deposit) in its name because it is not allowed to deposit funds but is expected to channel funds by bringing together lenders
and borrowers. Based on this requirement, the Company changed its name to PT Kinerja Sukses Gemilang (“PT Kinerja SG”),
on August 30, 2019.
On
February 28, 2019, Kinerja Pay Ltd. a wholly-owned
subsidiary of P.T. Kinerja, was incorporated in Nevada. The subsidiary has no employees
or operations, aside from a bank account to receive cash proceeds from security purchase agreements and convertible debentures,
which is then transferred to the Parent company or other subsidiaries.
Going
Concern
The
accompanying 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. The Company has not established
sufficient revenue to cover its operating costs, and as such, has incurred an operating loss since inception. For the year ended
December 31, 2019, the Company had a net loss of approximately $19,948,000. At December 31, 2019, the Company had an accumulated
deficit of approximately $38,093,000 and a working capital deficit of approximately $6,259,000. These factors raise substantial
doubt about the Company’s ability to continue as a going concern, within one year from the issuance date of this filing.
The Company’s ability to continue as a going concern is dependent on its ability to raise the required additional capital
or debt financing to meet short and long-term operating requirements. During the year ended December 31, 2019, the Company received
net cash proceeds of approximately $4,344,000 from the issuance of new convertible debentures. Subsequent to December 31, 2019,
the Company received approximately $496,000 from the issuance of new convertible debentures. Additional financing may not be available
upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may
not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict
our operations. The Company continues to pursue external financing alternatives to improve its working capital position. The accompanying
financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue
as a going concern.
COVID-19
Pandemic
In
December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since
spread worldwide, including to the Unites States as well as Indonesia, posing public health risks that have reached pandemic proportions
(the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic well-being of the Company’s
employees, customers, and vendors. The Company’s business operations, that of its operating subsidiaries and their operating
offices and primary banking relationships, as well as its chief executive officer, chief financial officer and key operating personnel,
are all located in Indonesia. Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially; however,
management cannot presently predict the scope and severity with which COVID-19 will impact our business, financial condition,
results of operations and cash flow. The ultimate impact of the COVID-19 pandemic on the Company’s operations is
unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including
the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic,
and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended
period of continued business disruption, and reduced operations.
Principles
of Consolidation
The
financial statements include the accounts of KinerjaPay Corp. and its wholly owned subsidiaries P.T. KinerjaPay, P.T. Kinerja,
and P.T. Kinerja Sukses Gemilang and Kinerja Pay Ltd. All significant inter-company balances and transactions have been eliminated.
Note
2 - Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and judgments that affect the reported amounts of assets, liabilities, and related disclosure of
contingent assets and liabilities at the financial statement date and the reported revenues and expenses during the reporting
periods. On an on-going basis, management evaluates their estimates, including those related to allowances for bad debt and inventory
obsolescence, income taxes, and contingencies and litigation. Management bases their
estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other resources. Actual results may differ from these estimates under different assumptions or conditions.
Foreign
Currency
Non-U.S.
entity operations are recorded in the functional currency of each entity. Results
of operations for non-U.S. dollar functional currency entities are translated into U.S. dollars using average currency rates or
actual action date currency rate. Assets and liabilities are translated using currency rates at period end. Foreign currency translation
adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity.
Cash
and Cash Equivalents
For
financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities
of three months or less to be cash or cash equivalents. There were no cash equivalents as of December 31, 2018.
Accounts
Receivable
Accounts
receivable consist primarily of trade receivables from customers. The Company provides an allowance for doubtful trade receivables
equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and
market conditions and a review of the current status of each customer’s trade accounts receivable. There was no allowance
for doubtful trade receivables at December 31, 2019 and the allowance for doubtful trade receivables was $9,439 at December 31,
2018.
Inventory
Inventories,
which consist of finished goods, are stated at the lower of cost or market value, using the first-in, first-out convention. The
Company regularly reviews its inventory quantities on hand, and when appropriate, records a provision for excess and slow-moving
inventory.
Deposits
Deposits
represents prepayments to third party vendors who provide the Company with vouchers, prepaid phone credit, etc., that the Company
sells through its licensed portal. The Company deposits cash to the vendors and once the sale is made, the vendors deduct the
deposit from their account. Each transaction is done electronically to record the purchase (to the vendors) and the sale (to the
user), and the products are then transferred to the users. The unused funds can only be refunded to the Company upon the termination
of the agreement with the vendors, and only after both parties settle their obligations.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of
the assets, generally 3 - 7 years, and 20 years for the building. Expenditures for renewals and betterments are capitalized.
Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Gain or loss upon sale or retirement
due to obsolescence is reflected in the operating results in the period the event takes place.
Valuation
of Long-Lived Assets
The
Company reviews the recoverability of their long-lived
assets, including property and equipment, when events or changes in circumstances occur that indicate that the carrying value
of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value
of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations.
If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between
estimated fair value and carrying value. Our primary measure of fair value is based on discounted cash flows. The measurement
of impairment requires management to make estimates of these cash flows related to long- lived assets, as well as other fair value
determinations.
Stock
Based Compensation
Stock-based
awards are accounted for using the fair value method in accordance with ASC 718, Share-Based Payments. The Company’s
primary type of share-based compensation consists of stock options. The Company uses the Black-Scholes option pricing model in
valuing options. The inputs for the valuation analysis of the options include the market value of the Company’s common stock,
the estimated volatility of the Company’s common stock, the exercise price of the stock options and the risk-free interest
rate.
Accounting
For Obligations And Instruments Potentially To Be Settled In The Company’s Own Stock
The
Company accounts for obligations and instruments potentially to be settled in the Company’s stock in accordance with FASB
ASC 815, Accounting for Derivative Financial Instruments. This issue addresses the initial balance sheet classification
and measurement of contracts that are indexed to, and potentially settled in, the Company’s own stock.
Embedded
derivatives are separated from the host contract and carried at fair value when (1) the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate,
standalone instrument with the same terms would qualify as a derivative instrument. The derivative is measured both initially
and in subsequent periods at fair value, with changes in fair value recognized on the Statement of Operations.
Fair
Value of Financial Instruments
FASB
ASC 825, “Financial Instruments,”
requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized
on the balance sheet, for which it is practicable to estimate fair value. FASB ASC
825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction
between willing parties. At December 31, 2019 and December 31, 2018, the carrying value of certain financial instruments (cash
and cash equivalents, accounts payable and accrued expenses, and notes payable) approximates fair value due to the short-term
nature of the instruments or interest rates, which are comparable with current rates.
Fair
Value Measurements
The
Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three
levels of inputs which prioritize the inputs used in measuring fair value are:
●
|
Level
1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets
that the Company has the ability to access.
|
●
|
Level
2: Inputs to the valuation methodology include:
|
|
-
|
Quoted
prices for similar assets or liabilities in active markets;
|
|
-
|
Quoted
prices for identical or similar assets or liabilities in inactive markets;
|
|
-
|
Inputs
other than quoted prices that are observable for the asset or liability;
|
|
-
|
Inputs
that are derived principally from or corroborated by observable market data by correlation or other means.
|
If
the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term
of the asset or liability.
●
|
Level
3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The
assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input
that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and
minimize the use of unobservable inputs.
The
Company did not have any Level 1 or Level 2 assets and liabilities at December 31, 2019 and 2018. The Derivative liabilities at
December 31, 2019 and 2018, are Level 3 fair value measurements.
The
table below sets forth a summary of the changes in the fair value of the Company’s derivative liabilities classified as
Level 3 for the years ended December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Balance at beginning of the year
|
|
$
|
807,000
|
|
|
$
|
-
|
|
Initial recognition of conversion feature
|
|
|
7,498,000
|
|
|
|
851,000
|
|
Reclassification to equity
|
|
|
(4,369,583
|
)
|
|
|
(61,000
|
)
|
Change in fair value
|
|
|
(227,417
|
)
|
|
|
17,000
|
|
Balance at end of the year
|
|
$
|
3,708,000
|
|
|
$
|
807,000
|
|
The
table below sets forth a summary of the changes in the fair value of the Company’s warrant liabilities classified as Level
3 for the year ended December 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Balance at beginning of the year
|
|
$
|
374,000
|
|
|
$
|
-
|
|
Initial recognition of warrant liability
|
|
|
1,027,000
|
|
|
|
514,000
|
|
Reclassed to equity upon exercise
|
|
|
(727,000
|
)
|
|
|
-
|
|
Reclassed to equity upon expiration
|
|
|
(318,000
|
)
|
|
|
-
|
|
Change in fair value
|
|
|
839,000
|
|
|
|
(140,000
|
)
|
Balance at end of the year
|
|
$
|
1,195,000
|
|
|
$
|
374,000
|
|
At
December 31, 2019 and 2018, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible
debentures based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions
used consists, in part, of the price of the Company’s common stock, a risk free interest rate based on the average yield
of a Treasury note and expected volatility of the Company’s common stock all as of the measurement dates, and the various
estimated reset exercise prices weighted by probability.
When
the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in
current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy
based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur.
For the periods ended December 31, 2019 and 2018, there were no significant transfers of financial assets or financial
liabilities between the hierarchy levels.
Earnings
per Common Share
The
Company computes net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both
basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss)
available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method
and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period
is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilutive potential shares if their effect is anti-dilutive. For the year ended December 31, 2019, the Company had
approximately $2,768,000 in convertible debentures whose approximately 84,472,000 underlying shares are convertible at the holders’
option at conversion prices ranging from fixed conversion prices of $1.75 through $0.15 and variable conversion rates of 60% to
65% of the defined trading price and approximately 8,452,000 warrants with an exercise price of $3.00 to $0.15, certain warrants
having exercise prices which reset to 65% of defined trading price upon future dilutive issuances, which were not included in
the calculation of diluted EPS as their effect would be anti-dilutive. For the year ended December 31, 2018, the Company had approximately
$1,742,000 in convertible debentures whose approximately 11,906,000 underlying shares are convertible at the holders’ option
at conversion prices ranging from – a fixed conversion price of $1.75 to a variable conversion rate of 60% to 65% of the
defined trading price and approximately 4,293,000 warrants with an exercise price of $2.00 to $0.20, which were not included in
the calculation of diluted EPS as their effect would be anti-dilutive.
Revenue
Recognition
The
Company’s revenue
mostly focuses on e-commerce through their portal and mobile app. The Company launched
their virtual marketplace (“KMALL”) during 2017 as a free platform for buyers to explore products and sellers to establish
a low-cost online presence for their products from the local Indonesian market. Buyers and sellers can access KMALL from their
electronic devices. In addition to the typical categories of consumer products offered similarly by other virtual marketplaces,
KMALL offers mobile phone prepaid vouchers and computer-related goods. The Company also provides electronic payment service to
consumers and merchants using the technology acquired in August 2018 from P.T. Kinerja on the Portal and Mobile App. The service
provides an affordable, secure and convenient method for money transfer, bill payment and online transactions. To date substantially
all the Company’s revenue has been earned in the mobile phone prepaid product.
Effective
January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue
when each performance obligation is satisfied.
Currently, while the Company
is still working on developing the other future areas of their business, the Company’s revenue is substantially all in ecommerce.
Revenue is recognized when control of the product transfers to the customer. The virtual marketplace revenue accounts for
approximately $438,000 and $2,807,000 of the Company’s total revenue for the years ended December 31, 2019 and 2018,
respectively.
Income
Taxes
Pursuant
to ASC 740, Accounting for Income Taxes, the Company is required to compute tax asset benefits for net operating losses
carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because
the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
The
Company must make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates
and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition
of revenue and expense for tax and financial statement purposes.
Deferred
tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and
liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition
of deferred tax assets if realization of such assets is more likely than not to occur. Realization of net deferred tax assets
is dependent upon our generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit
from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. We have determined it more likely
than not that these timing differences will not materialize and have provided a valuation allowance against all of our net deferred
tax asset. Management will continue to evaluate the realizability of the deferred tax asset and its related valuation allowance.
If our assessment of the deferred tax assets or the corresponding valuation allowance were to change, we would record the related
adjustment to income during the period in which we make the determination. Our tax rate may also vary based on our results and
the mix of income or loss in domestic and foreign tax jurisdictions in which we operate.
ASC
740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and
for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax
is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available
tax benefits not expected to be realized.
In
addition, the Company’s management performs an evaluation of all uncertain income tax positions taken or expected to be
taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more
likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is
required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes.
The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax
expense in the consolidated statements of operations.
Recent
Accounting Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) The standard requires all leases that have a term of
over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use
asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these
leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs
of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term.
Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use
asset) and interest expense (for interest on the lease liability). This standard was effective for interim and annual periods
beginning January 1, 2019 and must be applied on a modified retrospective basis to leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements. The Company adopted ASC 842 on January
1, 2019, with no impact on their financial statements.
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. ASU 2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment
model (known as the current expected credit losses model) that is based on expected losses rather than incurred losses. Under
the new guidance, an entity recognizes, as an allowance, its estimate of expected credit losses. In November 2018, ASU 2016-13
was amended by ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. ASU 2018-19
changes the effective date of the credit loss standards (ASU 2016-13) to fiscal years beginning after December 15, 2021, including
interim periods within those fiscal years. The Company does not believe that the impact of adopting this standard will have a
material effect on its financial statements.
On
July 13, 2017, the FASB issued a two-part Accounting Standards Update (ASU), No. 2017-11,
I. Accounting for Certain Financial Instruments With Down Round Features and II.
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests With a Scope Exception. The ASU is
effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2018. For all other organizations, the amendments are effective for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. This guidance was adopted January
1, 2018 and has been applied to the financial instruments issued during the years ended December 31, 2019 and 2018, which have
down round features.
On
May 10, 2017, the FASB issued ASU 2017-09 “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”,
which provides guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the
classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance was
effective prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted.
The adoption of ASU 2017-09 did not have any impact on the Company’s consolidated financial statements and related disclosures.
Management’s
Evaluation of Subsequent Events
The
Company evaluates events that have occurred after the balance sheet date of December 31, 2019, through the date which the consolidated
financial statements were issued. Based upon the review, other than described in Note 12 – Subsequent Events, the Company
did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated
financial statements.
Note
3 – Acquisition of P.T. KinerJa Indonesia
On
August 31, 2018, the Company acquired 100% of the outstanding shares of its licensor, P.T.
Kinerja, which had previously issued the Company, as licensee, the exclusive license of the Company’s IP technology.
(Note 1) At the date of the closing of the acquisition, P.T. Kinerja had 18 million
shares issued and outstanding, of which 75% or 13.5 million the shares were owned by the CEO of the Company. The consideration
for the acquisition was $1,200,000, to be paid by a promissory note which was issued by the Company to P.T. Kinerja shareholders,
all related parties. The promissory note (the “Note”) bears interest at the rate of 6% per annum and is due twenty-four
months from the date of the agreement. As part of the acquisition, the Company terminated its Service agreement dated February
20, 2016, with PT Kinerja. In accordance with ASC 805-50-30-5, Transactions Between Entities
Under Common Control, as the Company’s CEO and sole director was in control of both the Company and P.T. Kinerja,
the acquisition was accounted for under common control accounting, and therefore the assets acquired and liabilities assumed were
recognized at their historical cost basis.
During
periods prior to their acquisition of P.T. Kinera, the Company could only recognize revenues on a “net basis” as they
were not the principal in the transactions, but as a result of the acquisition, the Company is
now the principal, and the revenues can be recognized on a “gross basis.” In addition, the Company now has
the ability to consolidate its IP technology and manage its 1,500 square-feet data center located in North Sumatra which the Company
plans to expand to provide cloud computing services as well as data mining from the Company’s existing customer base. The
Company believes that the acquisition will make the Company more cost efficient and potentially generate more revenues from other
IT services.
The
following table summarizes the allocation of the purchase price to the fair value of the assets acquired on the acquisition date:
Cash
|
|
$
|
23,814
|
|
Receivables
|
|
|
27,537
|
|
Prepaid expenses and other current assets
|
|
|
27,727
|
|
Inventory
|
|
|
2,538
|
|
Building and equipment, net
|
|
|
695,440
|
|
Accounts payable and accrued liabilities
|
|
|
(725,866
|
)
|
Net assets acquired
|
|
$
|
51,190
|
|
Due
to the consideration for the acquisition being the promissory note in the amount of $1,200,000, the excess of the consideration
over the carrying value of the net assets acquired from PT Kinerja, adjusted to $1,132,110 was included in additional paid in
capital, in accordance with ASC 805-50-30-5, Common Control Accounting.
The
following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred
on January 1, 2018:
|
|
Pro Forma for the
Year Ended
December 31, 2018
(unaudited)
|
|
Revenue
|
|
$
|
2,954,914
|
|
Cost of goods sold
|
|
|
2,819,998
|
|
Operating expenses
|
|
|
6,558,479
|
|
Other income(expenses)
|
|
|
(1,822,021
|
)
|
Net loss
|
|
$
|
(8,245,584
|
)
|
Note
4 – CONVERTIBLE NOTES RECEIVABLE
On
May 29, 2019 the Company entered into a convertible note receivable with Oncolix, Inc in the principal amount of $20,000, with
a maturity date of November 29, 2019. The note bears interest at 12%, which increases to 22% upon an event of default. In certain
events of default as set forth in the note, the outstanding principal balance increases by 50%. During the first 180 days the
convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the principal
and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price of 50% of the
lowest trading price of Oncolix, Inc.’s common stock over the thirty days prior to the conversion date.
As
disclosed in a Form 8K filed with the SEC on July 3, 2019, on July 2, 2019, Oncolix received a final notice of default under a
license agreement with its product candidate. Additionally disclosed, was that Oncolix has been unable to finance its continuing
operations and can no longer meet its continuing obligations, and as such substantially all of its remaining assets are pledged
to the holders of its convertible notes. Therefore, the Company has fully reserved this amount due under the convertible note
receivable.
On
June 3, 2019 the Company acquired from Power Up Lending Group LTD, one of their noteholders (Note 7), a convertible note receivable
payable by Mineral Mountain Mining & Mining, n/k/a Quad M Solutions, Inc. (“MMMM”), for a purchase price of $96,816,
with a maturity date of November 30, 2019. The note bears interest at 12%, which increases to 22% upon an event of default. In
certain events of default as set forth in the note, the outstanding principal balance increases by 50%. The note is convertible
at a variable conversion price of 58% of the average of the lowest two trading prices of MMMM’s common stock over the fifteen
days prior to the conversion date.
On
July 1, 2019 the Company entered into a second convertible note receivable with MMMM in the principal amount of $34,000, with
a maturity date of April 7, 2020. The note bears interest at 10%, which increases to 22% upon an event of default. In certain
events of default as set forth in the note, the outstanding principal balance increases by 50%. During the first 180 days the
convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the principal
and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price of 50% of the
lowest trading price of MMMM, Inc.’s common stock over the thirty days prior to the conversion date.
On
September 9, 2019 the Company entered into a convertible note receivable with Accelerated Pharma, Inc. in the principal amount
of $20,000, with a maturity date of April 9, 2020. The note bears interest at 10%, which increases to 22% upon an event of default.
In certain events of default as set forth in the note, the outstanding principal balance increases by 50%. During the first 180
days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the
principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the
debenture. The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price
of 50% of the lowest trading price of Accelerated Pharma, Inc.’s common stock over the thirty days prior to the conversion
date.
On
September 23, 2019 the Company entered into a convertible note receivable with Bigfoot Project Investments, Inc., n/k/a Lord Global
Corporation (“LRDG”) in the principal amount of $20,000, with a maturity date of March 23, 2020. The note bears interest
at 10%, which increases to 22% upon an event of default. In certain events of default as set forth in the note, the outstanding
principal balance increases by 50%. During the first 180 days the convertible note receivable is in effect, the borrower may redeem
the note at amounts ranging from 120% to 145% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. The note is convertible beginning on the date 180 days following the
issuance date, at a variable conversion price of 50% of the lowest trading price of LRDG’s common stock over the thirty
days prior to the conversion date.
On
September 27, 2019 the Company entered into a convertible note receivable with GEX Management, Inc. (“GEX”) in the
principal amount of $45,000, with a maturity date of March 27, 2020. The note bears interest at 10%, which increases to 22% upon
an event of default. In certain events of default as set forth in the note, the outstanding principal balance increases by 50%.
During the first 180 days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from
120% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date
of issuance of the debenture. The note is convertible beginning on the date 180 days following the issuance date, at a variable
conversion price of 50% of the lowest trading price of GEX’s common stock over the thirty days prior to the conversion date.
On
October 1, 2019 the Company entered into a convertible note receivable with MMMM in the principal amount of $94,000, with a maturity
date of September 30, 2020. The $34,000 July 1, 2019 note was cancelled and included in the principal balance of this new note.
The note bears interest at 8%, which increases to 24% upon an event of default. In certain events of default as set forth in the
note, the outstanding principal balance increases by 20%. During the first 180 days the convertible note receivable is in effect,
the borrower may redeem the note at amounts ranging from 110% to 135% of the principal and accrued interest balance, based on
the redemption date’s passage of time from the date of issuance of the debenture. The note is convertible at a variable
conversion price of 60% of the lowest trading price of MMMM’s common stock over the twenty days prior to the conversion
date.
On
October 4, 2019 the Company acquired from Power Up Lending Group LTD, one of their noteholders (Note 7), a promissory note receivable
with Medifirst Solutions, Inc. (“Medifirst”), for a purchase price of $19,374, which bears interest at 7%, and with
a revised maturity date of October 4,2020.
On
November 1, 2019, the Company entered into a promissory note with Token Team.com, for a purchase price of $25,000, with a maturity
date of June 30, 2020. The note bears interest at 12%, which increases to 22% upon an event of default.
On
November 17, 2019 the Company acquired from Jefferson Street Capital, LLC, one of their noteholders (Note 7), another convertible
note receivable with MMMM, for a purchase price of $99,500, with a maturity date of April 30, 2020. The note bears interest at
12%, which increases to 24% upon an event of default. In certain events of default as set forth in the note, the outstanding principal
balance increases by 20%. During the first 180 days the convertible note receivable is in effect, the borrower may redeem the
note at amounts ranging from 110% to 135% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. The note is convertible at a variable conversion price of 60% of the
lowest trading price of Quad M’s common stock over the twenty days prior to the conversion date, with the conversion price
not to be greater than $0.02.
On
December 9, 2019, the Company entered into a convertible note receivable with Accelerated Pharma, Inc. in the principal amount
of $10,000, with a maturity date of June 9, 2020. The note bears interest at 10%, which increases to 22% upon an event of default.
In certain events of default as set forth in the note, the outstanding principal balance increases by 50%. During the first 180
days the convertible note receivable is in effect, the borrower may redeem the note at amounts ranging from 120% to 145% of the
principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the
debenture. The note is convertible beginning on the date 180 days following the issuance date, at a variable conversion price
of the lower of $0.25 or 50% of the lowest trading price of Accelerated Pharma, Inc.’s common stock over the thirty days
prior to the conversion date. Subsequent to the year-ended December 31, 2019, the Company advanced an additional $7,500 under
this note.
Note
5 - Prepaid expenses and Other Assets
Included
in prepaid expenses is the long term portion of preferred shares issued in connection with the FRS acquisition and related employment
agreement (See Note 9).
Also
included in Prepaid expenses and other assets, current portion is $322,000 paid as finder’s fees to various parties in connection
with an expected equity investment in the Company and a related standby letter of credit. The amount will be offset against the
investment in equity when the transaction closes.
At
December 31, 2018 other assets also included $31,815 of the unamortized balance related to an agreement entered into on July 31,
2017, with Ace Legends Pte. Ltd. in connection with a partnership in game development, for a period of 18 months. The agreement
was amended to commence on December 1, 2017. The agreement called for the Company to pay $100,000 in cash and to issue 80,000
shares of common stock of the Company. The shares were valued at $128,000, based on the trading value of the common stock of the
Company on the date of the agreement. As of December 31, 2019, the balance was fully amortized. For the years ended December 31,
2019 and 2018, $31,815 and $58,893, respectively, of amortization expense has been recognized.
Note
6 - Fixed Assets
Fixed
assets consist of the following:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
Building
|
|
$
|
764,093
|
|
|
$
|
729,760
|
|
Vehicles
|
|
|
16,693
|
|
|
|
26,713
|
|
Office Equipment and Furniture
|
|
|
293,588
|
|
|
|
220,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074,374
|
|
|
|
976,890
|
|
Less: Accumulated Depreciation
|
|
|
(411,492
|
)
|
|
|
(327,192
|
)
|
|
|
$
|
662,882
|
|
|
$
|
649,698
|
|
Depreciation
expense for the years ended December 31, 2019 and 2018 was $44,855 and $65,086, respectively.
Subsequent
to year end on March 9, 2020, the building was sold to an unrelated third party for $803,571. See Note 12.
Note
7 – Convertible Notes Payable
2019
Convertible notes payable:
January
2, 2019 note
On
January 2, 2019, the Company executed an 12% convertible promissory note payable to an accredited investor in the principal amount
of $43,000, which was due on October 30, 2019. In an event of default as set forth in the note, the interest rate increases to
a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company
cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On
April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC,
and therefore the note principal balance was increased by $21,500. As a result the outstanding balance of the note as of June
30, 2019, was $64,500. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After
the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by
the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved
six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible
redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued
interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion
feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when
the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
The
derivative liability was recognized on July 1, 2019, in the initial amount of $81,000 based on the key valuations assumptions
consisting, in part, of the price of the Company’s common stock of $0.23; a risk-free interest rate of 2.21% and expected
volatility of the Company’s common stock, of 172.14%, and the various estimated reset exercise prices weighted by probability.
On
July 2, 2019, the Company exercised its option to redeem the January 2, 2019 debenture, for a redemption price at $85,000. The
principal of $43,000 was derecognized with the additional $42,000 paid upon redemption recognized as a financing cost. The holder
did not require the inclusion of the default penalty recognized by the Company on April 15, 2019, as such, the penalty was reversed
upon the redemption. As a result of the redemption, the unamortized discount related to the redeemed balance of $64,500 was immediately
expensed. As the derivative was originally valued and recognized on July 1, 2019, there was no change in fair value upon redemption
and reclassification of the derivative into equity.
January
18, 2019 note
On
January 18, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $165,000,
with an OID of $15,000, convertible into shares of common stock of the Company, which matured on January 18, 2020. The note bears
interest at 10%, which increases to 20% upon an event of default. In an event of default as set forth in the note, the outstanding
principal balance increases by 40%. On April 15, 2019, the note was in default due to the Company being delinquent in their filings
under the Exchange Act with the SEC, and therefore the note principal balance was increased by $66,000. As a result the outstanding
balance of the note as of June 30, 2019, was $231,000. On August 6, 2019, the accredited investor’s note was purchased from
the holder by three other noteholders for a purchase price of $254,000, which included the default penalty and accrued interest.
The note is convertible at 65% multiplied by the lowest closing price during the 15 days prior to the conversion. The discount
increases by 5% discount if there is a DTC “chill” in effect., and an additional 5% if the Company is not DWAC eligible.
Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is
actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the
Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of
a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $228,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.08 at issuance date; a risk-free interest rate of 2.60% and expected
volatility of the Company’s common stock, of 148.69%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $63,000 was immediately expensed as financing costs.
On
various dates in August and September 2019, $165,508 of principal and $10,000 of accrued interest and fees of the note was converted
by the new holders into 3,915,217 shares of the Company’s common stock at a conversion price of $0.05, at which time the
derivative fair value of $280,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior
to reclassification, with no change in the fair value, with the key valuations assumptions consisting, in part, of the price of
the Company’s common stock of $0.21; a risk-free interest rate of 2.33% and expected volatility of the Company’s common
stock of 172.14%, and the various estimated reset exercise prices weighted by probability.
On
various dates in October and November 2019, the note was fully converted into 1,212,023 shares of the Company’s common stock
at conversion prices ranging from $0.03 to $0.04, at which time the derivative fair value of approximately $66,000 relating to
the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease
in the fair value of approximately $29,000, with the key valuations assumptions consisting, in part, of the price of the Company’s
common stock of $0.09 to $0.11; a risk-free interest rate of 1.58% to 1.66% and expected volatility of the Company’s common
stock of 313.58%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized
debt discount was also immediately expensed.
January
25, 2019 first note
On
January 25, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $38,500
for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The
note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the
default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares
or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default
due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance
was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible
at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The conversion price shall be adjusted
upon subsequent sales of securities at a price lower than the original conversion price. The variable conversion price has been
adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Per the agreement, the Company
is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time
ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore
requires bifurcation and will be accounted for as a derivative liability.
In
connection with the January 25, 2019 first note, the Company issued 115,500 warrants, exercisable at $0.49, with a five year term.
The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock of $0.66 at issuance date; a risk-free interest rate of 2.23%
and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $72,000. The warrants were
exercised on December 2, 2019, in a cashless exercise, resulting in the issuance of 710,080 shares of the Company’s common
stock.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $39,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.05 at issuance date; a risk-free interest rate of 2.60% and expected
volatility of the Company’s common stock, of 177.54%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $72,500 was immediately expensed as financing costs.
The
January 25, 2019 first note was fully converted on August 1, 2019, into 1,087,685 shares of the Company’s common stock at
a conversion price of $0.06, at which time the derivative fair value of approximately $66,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of
approximately $9,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock
of $0.17; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock of 172.14%, and the various
estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately
expensed.
January
25, 2019 second note
On
January 25, 2019, the Company entered into a convertible note with another accredited investor for the principal amount of $38,500
for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The
note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the
default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares
or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default
due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance
was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible
at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The conversion price shall be adjusted
upon subsequent sales of securities at a price lower than the original conversion price. The variable conversion price has been
adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Per the agreement, the Company
is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time
ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore
requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In
connection with the January 25, 2019 second note, the Company issued 115,500 warrants, exercisable at $0.49, with a five year
term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions
used consist, in part, of the price of the Company’s common stock of $0.66 at issuance date; a risk-free interest rate of
2.23% and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $72,000.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $39,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.05 at issuance date; a risk-free interest rate of 2.60% and expected
volatility of the Company’s common stock, of 177.54%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $72,500 was immediately expensed as financing costs.
On
various dates in August and September 2019, the January 25, 2019 second note was fully converted into 2,015,812 shares of the
Company’s common stock at conversion prices ranging from of $0.04 to $0.06, at which time the derivative fair value of $70,000
relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting
in a decrease in the fair value of $5,000, with the key valuations assumptions consisting, in part, of the price of the Company’s
common stock on the dates of conversion; a risk-free interest rate of 2.29% and expected volatility of the Company’s common
stock of 210.34%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized
debt discount was also immediately expensed.
January
25, 2019 third note
On
January 25, 2019, the Company entered into a convertible note with another accredited investor for the principal amount of $38,500
for a purchase price of $35,000, convertible into shares of common stock of the Company, which matures on October 25, 2019. The
note bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the
default sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares
or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On April 15, 2019, the note was in default
due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance
was increased by $19,250. As a result the outstanding balance of the note as of June 30, 2019, was $57,750. The note is convertible
at 65% multiplied by the lowest closing price during the 20 days prior to the conversion. The conversion price shall be adjusted
upon subsequent sales of securities at a price lower than the original conversion price. The variable conversion price has been
adjusted to 45% of the market price, based on the conversion price of a new note on May 9, 2019. Per the agreement, the Company
is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time
ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore
requires bifurcation and will be accounted for as a derivative liability.
In
connection with the January 25, 2019 third note, the Company issued 115,500 warrants, exercisable at $0.49, with a five year term.
The Company estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used
consist, in part, of the price of the Company’s common stock of $0.66 at issuance date; a risk-free interest rate of 2.23%
and expected volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $72,000.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $39,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.05 at issuance date; a risk-free interest rate of 2.60% and expected
volatility of the Company’s common stock, of 177.54%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $72,500 was immediately expensed as financing costs.
The
January 25, 2019 third note was fully converted on August 1, 2019, into 1,107,685 shares of the Company’s common stock at
a conversion price of $0.06, at which time the derivative fair value of approximately $66,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of
approximately $9,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock
of $0.17; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock of 172.14%, and the various
estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately
expensed.
January
28, 2019 note
On
January 28, 2019, the Company executed an 12% convertible promissory note payable to an accredited investor in the principal amount
of $48,000, which is due on November 30, 2019. In an event of default as set forth in the note, the interest rate increases to
a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company
cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On
April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC,
and therefore the note principal balance was increased by $24,000. As a result the outstanding balance of the note as of June
30, 2019, was $72,000. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After
the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by
the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved
six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible
redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued
interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion
feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when
the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
The
derivative liability was recognized on July 27, 2019, in the initial amount of $90,000 based on the key valuations assumptions
consisting, in part, of the price of the Company’s common stock of $0.23; a risk-free interest rate of 2.12% and expected
volatility of the Company’s common stock, of 172.14%, and the various estimated reset exercise prices weighted by probability.
On
several dates in August 2019, $45,000 of the January 28, 2019 note was converted into 702,028 shares of the Company’s common
stock, at which time the derivative fair value of approximately $49,000 relating to the conversion feature was reclassified to
equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $12,000, with the
key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.12; a risk-free interest
rate of 2.45% and expected volatility of the Company’s common stock of 203.81%, and the various estimated reset exercise
prices weighted by probability. The remaining balance and accrued interest was paid off by the Company.
February
28, 2019 note
On
February 28, 2019, the Company executed an 10% fixed convertible promissory note payable to an accredited investor in the principal
amount of $115,000 with a $10,000 OID, which is due on November 28, 2019. In the case of a sale event, as defined in the agreement,
the principal amount of the note increases to 150%. The note is convertible into shares of Common Stock at a conversion price
of the lower of (i) $1.00 per share or (ii) 65% of the lowest trading price for the 20 prior trading days including the day upon
which a notice of conversion is received by the Company or its transfer agent. The discount increases 10% if there is a DTC “chill”
in effect. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion
price. The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note
on May 9, 2019. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 125% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time
from the date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved
five times the number of shares that is actually issuable upon full conversion of the note. The conversion feature met the definition
of a derivative and required bifurcation and to be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $119,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.07 at issuance date; a risk-free interest rate of 2.54% and expected
volatility of the Company’s common stock, of 181.78%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $4,000 was immediately expensed as financing costs.
On
September 6, 2019, the note was fully converted into 2,219,872 shares of the Company’s common stock at a conversion price
of $0.05, at which time the derivative fair value of approximately $139,000 relating to the conversion feature was reclassified
to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $109,000, with
the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.13; a risk-free interest
rate of 2.33% and expected volatility of the Company’s common stock of 210.34%, and the various estimated reset exercise
prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
March
4, 2019 note
On
March 4, 2019, the Company executed an 8% fixed convertible promissory note payable to an accredited investor in the principal
amount of $55,000 with a $5,000 OID, for a purchase price of $50,000, which is due on March 5, 2020. In the case of an event of
default, as defined in the agreement, the principal amount of the note increases to 150%. On April 15, 2019, the note was in default
due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance
was increased by $27,500. As a result the outstanding balance of the note as of June 30, 2019, was $82,500. The note is convertible
into shares of Common Stock at a conversion price of 65% of the market price, as defined in the note. The discount increases 15%
if there is an event of default, and 10% if the shares are not deliverable via DWAC. During the first 180 days the convertible
redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal and accrued
interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement,
the Company is required at all times to have authorized and reserved eight times the number of shares that is actually issuable
upon full conversion of the note. The conversion feature met the definition of a derivative and required bifurcation and to be
accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $61,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.54% and expected
volatility of the Company’s common stock, of 181.78%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $6,000 was immediately expensed as financing costs.
On
September 6, 2019, the note was fully converted into 1,786,022 shares of the Company’s common stock at a conversion price
of $0.05, at which time the derivative fair value of approximately $110,000 relating to the conversion feature was reclassified
to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $14,000, with the
key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.13; a risk-free interest
rate of 2.27% and expected volatility of the Company’s common stock of 193.89%, and the various estimated reset exercise
prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
March
5, 2019 note
On
March 5, 2019, the Company executed an 12% convertible promissory note payable to an accredited investor in the principal amount
of $53,000, which is due on January 15, 2020. In an event of default as set forth in the note, the interest rate increases to
a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company
cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. On
April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC,
and therefore the note principal balance was increased by $26,500. As a result the outstanding balance of the note as of June
30, 2019, was $79,500. The note is convertible during first 180 days after issuance at a fixed conversion price of $1.75. After
the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 61% multiplied by
the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized and reserved
six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible
redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued
interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion
feature does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when
the conversion price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
The
derivative liability was recognized on September 1, 2019, in the initial amount of $70,000 based on the key valuations assumptions
consisting, in part, of the price of the Company’s common stock of $0.17; a risk-free interest rate of 1.98% and expected
volatility of the Company’s common stock, of 210.34%, and the various estimated reset exercise prices weighted by probability.
On
September 7, 2019, the Company exercised its option to redeem the March 5, 2019 debenture, for a redemption price at $84,286.
The principal of $53,000 was derecognized with the additional $31,286 paid upon redemption recognized as a financing cost. As
a result of the redemption, the unamortized discount related to the converted balance of $53,000 was immediately expensed. As
the derivative was originally valued and recognized on September 1, 2019, there was no change in fair value upon redemption and
reclassification of the derivative into equity.
March
14, 2019 note
On
March 14, 2019, the Company entered into a 12% convertible note for the principal amount of $118,000 with an accredited investor,
which matures on March 14, 2020, and has a $5,000 OID. The holder will also deduct $13,000 from the purchase price for legal and
due diligence fees. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with
a variable conversion rate at 60% of market price (as defined in the note). The conversion rate adjusts if there are common stock
equivalents issued and in which the aggregate per share price is below the original conversion price, in which case the adjusted
conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount increases to a 55%
discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or DTC eligible, as well
as an additional 5% discount for each event of default. The debenture also includes various liquidated damages for various events,
as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the shares upon receipt
of a conversion request. In an event of default, as defined in the note, the “default amount” shall be calculated
at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by (B) the conversion
price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded at any time between
the issuance date and the date of the event of default. Per the agreement, the Company is required at all times to have authorized
and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180
days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the
principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the
debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and therefore requires bifurcation
and will be accounted for as a derivative liability on the date the note becomes convertible, either 180 days after issuance or
upon an event of default.
The
derivative liability was recognized on September 10, 2019, in the initial amount of $175,000 based on the key valuations assumptions
consisting, in part, of the price of the Company’s common stock of $0.13; a risk-free interest rate of 1.89% and expected
volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability.
On
September 18, 2019, $60,000 of the March 14, 2019 note was converted into 813,008 shares of the Company’s common stock at
a conversion price of $0.07, at which time the derivative fair value of approximately $89,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification, resulting in no change in the fair value, with
the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.14; a risk-free interest
rate of 2.27% and expected volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise
prices weighted by probability.
On
October 2, 2019, the remaining $58,000 of the note was converted into 954,059 shares of the Company’s common stock at a
conversion price of $0.07, at which time the derivative fair value of approximately $96,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification, resulting in an increase in $10,000 in the
fair value, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.11;
a risk-free interest rate of 1.75% and expected volatility of the Company’s common stock, of 261.02%, and the various estimated
reset exercise prices weighted by probability.
March
25, 2019 note
On
March 25, 2019, the Company executed an 8% convertible promissory note payable to an accredited investor in the principal amount
of $137,500, for a purchase price of $125,000, which is due on March 24, 2020. In an event of default as set forth in the note,
the interest rate increases to a default amount of 18%, and the default sum due becomes 130% of the principal outstanding and
accrued interest (the “default redemption amount”). Alternatively, at the election of the holder, the Holder may require
the Company to redeem all or part of the default redemption amount through the issuance of such number of shares of common stock
equal to (x) the default redemption amount, divided by (y) or 55% of the lowest traded price in the 20 trading days prior to the
conversion date. On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange
Act with the SEC, and therefore the note principal balance was increased by $41,250. As a result the outstanding balance of the
note as of June 30, 2019, was $178,750. The note is convertible into shares of common stock at a conversion price of the lower
of (i) $1.00 per share or (ii) 61% of the lowest trading price for the 20 prior trading days prior to the conversion date. Per
the agreement, the Company is required at all times to have authorized and reserved three times the number of shares that is actually
issuable upon full conversion of the note. The Company may redeem the note at any time the note is outstanding and there is not
an event of default, at amounts ranging in the first 90 days from the date of issuance from 115% to 135% of the principal and
accrued interest balance, based on the redemption date’s passage of time. The note also includes a “most favored nation”
clause, whereby when the Company enters into any future financing transactions with a third-party investor, the Company must provide
the holder notification of the terms of the new financing transaction, and if the holder determines that the terms of the subsequent
investment are preferable to the original terms of the March 25, 2019 convertible promissory note, the original terms of the note
will be amended and restated, which may include the conversion terms. The conversion feature meets the definition of a derivative
and therefore requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $165,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.46 at issuance date; a risk-free interest rate of 2.41% and expected
volatility of the Company’s common stock, of 181.78%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $27,500 was immediately expensed as financing costs.
On
September 24, 2019, the Company exercised its option to redeem the debenture, for a redemption price at $192,582, 135% of the
principal and accrued interest amount. The principal of $137,500 plus accrued interest was derecognized with the additional $49,929
paid upon redemption recognized as a financing cost. As a result of the redemption, the unamortized discount related to the converted
balance of $103,125 was immediately expensed. Additionally, the derivative was remeasured upon redemption of the debenture, resulting
in an estimated fair value of $259,000, for an increase in fair value of $7,000. The key valuation assumptions used consist, in
part, of the price of the Company’s common stock of $0.13; a risk-free interest rate of 1.92% and expected volatility of
the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability.
April
1, 2019 note
On
April 1, 2019, the Company executed a 12% fixed convertible promissory note payable to an accredited investor in the principal
amount of $43,000, and is due on February 15, 2020. In an event of default as set forth in the note, the interest rate increases
to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the
Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%.
On April 15, 2019, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the
SEC, and therefore the note principal balance was increased by $21,500. As a result the outstanding balance of the note as of
June 30, 2019, was $64,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion price
of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall equal
the lesser of: (i) $1.75; and (ii) 61% multiplied by the market price, as defined in the agreement. Per the agreement, the Company
is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time
from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first
180 days, but will meet the definition of a derivative when the conversion price becomes variable and would at that time require
bifurcation and to be accounted for as a derivative liability.
The
derivative liability was recognized on September 28, 2019, in the initial amount of $93,000 based on the key valuations assumptions
consisting, in part, of the price of the Company’s common stock of $0.12; a risk-free interest rate of 1.83% and expected
volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability.
On
October 1, 2019, the Company exercised its option to redeem the April 1, 2019 debenture, for a redemption price at $70,261. The
principal of $64,500 was derecognized with the additional $5,792 paid upon redemption recognized as a financing cost. As a result
of the redemption, the unamortized discount related to the converted balance of $16,125 was immediately expensed. As the derivative
was originally valued and recognized on September 28, 2019, there was no change in fair value upon redemption and reclassification
of the derivative into equity.
April
25, 2019 note
On
April 25, 2019, the Company executed an 8% fixed convertible promissory note payable to an accredited investor in the principal
amount of $110,000, and is due on May 17, 2020. The convertible note had a OID of $10,000, for a purchase price of $100,000. In
an event of default as set forth in the note, the interest rate increases to a default amount of 18%, and the default sum due
becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to
reserve sufficient authorized shares, then the default sum increases to 200%. On May 20, 2019, the note was in default due to
the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note principal balance was
increased by $55,000. As a result the outstanding balance of the note as of June 30, 2019, was $165,000. On September 17, 2019,
the outstanding note was acquired from Tiger Trout by Adar Alef, LLC. The note is convertible into shares of Common Stock at 65%
of the lowest trading price of the common stock as reported on the National Quotations Bureau OTC market on which the Company’s
shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the
Company or its transfer agent. The conversion price is adjusted if any 3rd party has the right to convert monies at a discount
to market greater than the conversion price in effect at that time then the holder, may utilize such greater discount percentage.
The variable conversion price has been adjusted to 45% of the market price, based on the conversion price of a new note on May
9, 2019. Additionally, upon an event of default the conversion rate increases to 55% of the lowest trading price during the 20
days prior to conversion. Per the agreement, the Company is required at all times to have authorized and reserved three times
the number of shares that is actually issuable upon full conversion of the note. The Company may redeem the note at amounts ranging
from 110% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the
date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation and will
be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $163,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.64 at issuance date; a risk-free interest rate of 2.42% and expected
volatility of the Company’s common stock, of 176.09%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $53,000 was immediately expensed as financing costs.
On
November and December 2019, the note was fully converted into 5,000,396 shares of the Company’s common stock at a conversion
prices of $0.04 to $0.02, at which time the derivative fair value of approximately $232,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease of $145,000 in the
fair value, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.07
to $0.10; a risk-free interest rate of 1.55% to 1.58% and expected volatility of the Company’s common stock, of 256.49%
and 261.02%, and the various estimated reset exercise prices weighted by probability.
May
9, 2019 note
On
May 9, 2019, the Company entered into a 12% convertible promissory note with an accredited investor for $282,000, which matures
on November 6, 2019. The interest rate increases to a default rate of 24% for events as set forth in the agreement, including
if the market capitalization is below $5 million, or there are any dilutive issuances. There is a right of prepayment in the first
180 days, but there is no right to repay after 180 days. Per the agreement, the Company is required at all times to have authorized
and reserved three times the number of shares that is actually issuable upon full conversion of the note. There is also a cross
default provision to all other notes. In the event of default, the outstanding principal balance increases to 150%, and if the
Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%. On May 20, 2019,
the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore
the note principal balance was increased by $141,000. On September 18, 2019, the outstanding note was acquired from the holder
by another accredited investor, consisting of $232,000 of principal, $141,000 of default penalties and $22,752 of accrued interest.
Additionally, If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal,
not to be below $15,000. The Company must also obtain the noteholder’s written consent before issuing any new debt. Additionally,
if the note is not repaid by the maturity date the principal balance increases by $15,000. In connection with the convertible
debenture, the Company issued 313,263 of their common shares as a commitment fee to the noteholder, with a fair value of approximately
$169,000, based on the market value of the common stock on the date of issuance of $0.54, included in the debt discount. Upon
the acquisition of the note, the original note holder returned the commitment fee shares to the Company.
The
note is convertible into shares of the Company’s common stock at a variable conversion rate that is equal to the lesser
of the lowest trading price for the last 20 days prior to the issuance of the note or 45% of the lowest market price over the
20 days prior to conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than
the original conversion price. There are additional 12% adjustments to the conversion price for events set forth in the agreement,
including if the conversion price is less than $0.01, if the Company is not DTC eligible, the Company is no longer a reporting
company, or the note cannot be converted into free trading shares on or after six months from issue date. The holder has the option
to increase the principal by $5,000 per each default occurrence instead of applying further discounts to the conversion price.
However, under no circumstances shall the principal amount exceed an additional $25,000 nor can the conversion price be less than
30% multiplied by the market price due to the cumulative effect. Per the agreement, the Company is required at all times to have
authorized and reserved five times the number of shares that is actually issuable upon full conversion of the note. The conversion
feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $608,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.54 at issuance date; a risk-free interest rate of 2.46% and expected
volatility of the Company’s common stock, of 202.78%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $498,000 was immediately expensed as financing costs.
On
September 5, 2019, $50,000 of the May 9, 2019 note was converted into 1,000,100 shares of the Company’s common stock at
a conversion price of $0.05, at which time the derivative fair value of approximately $77,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of
$12,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.13; a
risk-free interest rate of 2.44% and expected volatility of the Company’s common stock of 210.74%, and the various estimated
reset exercise prices weighted by probability.
In
November and December 2019, another $119,380 of the note was converted into 5,900,000 shares of the Company’s common stock
at a conversion prices of $0.04 to $0.02, at which time the derivative fair value of approximately $256,000 relating to the conversion
feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in an increase of $63,000
in the fair value, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of
$0.03 to $0.09; a risk-free interest rate of 1.57% and expected volatility of the Company’s common stock, of 261.02% to
297.11%, and the various estimated reset exercise prices weighted by probability. Subsequent to year end, the remaining balance
was fully converted into 52,000,000 shares of the Company’s common stock at conversion prices ranging from $0.002 to $0.008.
May
17, 2019 note
On
May 17, 2019, the Company executed a 10% fixed convertible promissory note payable to an accredited investor in the principal
amount of $82,500, and is due on May 17, 2020. The convertible note had an OID of $7,500, for a purchase price of $75,000. In
an event of default as set forth in the note, the interest rate increases to a default amount of 24%. The note is convertible
into shares of Common Stock at a conversion price the lower of (i) the fixed price of $1.00 or (ii) 61% of the average of the
two (2) lowest trading prices of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s
shares are traded, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the
Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable.
Additionally, if the Company fails to comply with the reporting requirements of the Exchange Act (including but not limited to
becoming late or delinquent in its filings, even if the Company subsequently cures such delinquency), the discount shall be increased
an additional 15%. Per the agreement, the Company is required at all times to have authorized and reserved five times the number
of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note
is in effect, the Company may redeem the note at amounts ranging from 120% to 145% of the principal and accrued interest balance,
based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets
the definition of a derivative and requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $132,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.45 at issuance date; a risk-free interest rate of 2.35% and expected
volatility of the Company’s common stock, of 177.33%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $49,500 was immediately expensed as financing costs.
In
December 2019, $55,980 of the note was converted into 2,450,000 shares of the Company’s common stock at a conversion prices
of $0.04 to $0.02, at which time the derivative fair value of approximately $90,000 relating to the conversion feature was reclassified
to equity. The derivative was revalued prior to reclassification, resulting in an increase in the fair value of $1,000, with the
key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.03 to $0.07; a risk-free
interest rate of 1.55% to 1.59% and expected volatility of the Company’s common stock, of 256.49%, and the various estimated
reset exercise prices weighted by probability. Subsequent to the year end the note was fully converted into 3,152,791 shares of
the Company’s common stock at a conversion price of $0.009.
May
15, 2019 note
On
May 15, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $200,000, convertible
into shares of common stock of the Company, which matures on February 15, 2020. In an event of default as set forth in the note,
the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to
150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%.
If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or
continue after six months from the date of issuance of the note, the principal increases by $15,000. On May 20, 2019, the note
was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore the note
principal balance was increased by $100,000. As a result the outstanding balance of the note as of June 30, 2019, was $300,000.
The note is convertible into shares of Common Stock at a conversion price the lower of (i) the lowest closing price (as defined)
during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest trading price of the Common Stock
as reported on the National Quotations Bureau OTC market on which the Company’s shares are traded, for the 20 prior trading
days including the day upon which a notice of conversion is received by the Company or its transfer agent. The discount will be
increased by 10% if the Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”.
Furthermore, if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price
is less than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition,
the variable conversion price shall be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted
upon subsequent sales of securities at a price lower than the original conversion price. The conversion price shall be adjusted
upon subsequent sales of securities at a price lower than the original conversion price. If the Company enters into a 3(a)(9)
or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement,
the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable
upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem
the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires
bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $318,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.42 at issuance date; a risk-free interest rate of 2.30% and expected
volatility of the Company’s common stock, of 191.41%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $118,000 was immediately expensed as financing costs.
In
December 2019, $90,713 of the note was converted into 5,000,000 shares of the Company’s common stock at a conversion prices
of $0.04 to $0.02, at which time the derivative fair value of approximately $138,000 relating to the conversion feature was reclassified
to equity. The derivative was revalued prior to reclassification, resulting in an increase in the fair value of $67,000, with
the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.05; a risk-free interest
rate of 1.57% and expected volatility of the Company’s common stock, of 297.11%, and the various estimated reset exercise
prices weighted by probability. Subsequent to the year end the note was fully converted into 16,160,163 shares of the Company’s
common stock at conversion prices ranging from $0.01 to $0.006.
May
29, 2019 note
On
May 29, 2019, the Company executed a 10% fixed convertible promissory note payable to an accredited investor for the principal
amount of $115,000, which matures on May 29, 2020. The convertible note had an OID of $5,000, plus $5,000 was deducted from the
purchase price for legal and due diligence fees for a purchase price of $100,000. In an event of default as set forth in the note,
the interest rate increases to a default amount of 22% and the principal balance increases by 15%. The note is convertible into
shares of Common Stock at a conversion price equal to 60% multiplied by the lowest closing trade price during the 20 trading days
immediately preceding the applicable conversion. Per the agreement, the Company is required at all times to have 1,800,000 common
shares reserved. The Company may prepay the note at 125% of the principal and accrued interest balance. The conversion feature
meets the definition of a derivative and requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $168,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.47 at issuance date; a risk-free interest rate of 2.30% and expected
volatility of the Company’s common stock, of 177.33%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $53,000 was immediately expensed as financing costs.
On
December 11, 2019, the Company exercised its option to redeem the debenture, for a redemption price at $151,363. The principal
of $115,000 plus accrued interest was derecognized with the additional $36,363 paid upon redemption recognized as a financing
cost. As a result of the redemption, the unamortized discount related to the converted balance of $76,667 was immediately expensed.
Additionally, the derivative was remeasured upon redemption of the debenture, resulting in an estimated fair value of $189,000,
for an increase in fair value of $2,000. The key valuation assumptions used consist, in part, of the price of the Company’s
common stock of $0.05; a risk-free interest rate of 1.60% and expected volatility of the Company’s common stock, of 256.49%,
and the various estimated reset exercise prices weighted by probability.
June
3, 2019 note
On
June 3, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $192,500, convertible
into shares of common stock of the Company, which matures on June 3, 2020. The convertible note had an OID of $17,500, for a purchase
price of $175,000. The note bears interest at 10%, which increases to 24% upon an event of default. In an event of default as
set forth in the note, including if the Company does not pay the note at maturity, or the common stock of the Company is delisted
or loses its bid price, the default sum becomes 110% to 150% of the principal outstanding and accrued interest. The note is convertible
beginning on the six month anniversary of the note, at the lesser of: (i) $1.00; or (ii) 60% multiplied by lowest end of day VWAP
during the previous 20 days before the Issue date of the note. The discount shall increase to 50% if the Company experiences a
DTC “chill”. If the Company is not current in their filings with the SEC after the six month anniversary of the note,
the holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion.
Per the agreement, the Company is required at all times to have authorized and reserved five times the number of shares that is
actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the
Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of
a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes
convertible.
The
derivative liability was recognized on December 3, 2019, in the initial amount of $316,000, based on weighted probabilities of
assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.23 at issuance date; a risk-free interest rate of 1.60% and expected volatility of the Company’s
common stock, of 256.49%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated
fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $123,500 was immediately
expensed as financing costs.
On
two dates in October and December 2019, the note was fully converted into 5,584,032 shares of the Company’s common stock
at a conversion price of $0.04, at which time the derivative fair value of approximately $278,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of
$38,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.07 and
$0.13; risk-free interest rates of 1.55% and of 1.66% and expected volatility of the Company’s common stock, of 256.49%
and 261.02%, and the various estimated reset exercise prices weighted by probability.
June
28, 2019 note
On
June 28, 2019, the Company entered into a convertible note with an accredited investor which was funded on July 2, 2019, for the
principal amount of $118,000, convertible into shares of common stock of the Company, which matures on July 11, 2019. The convertible
note had an OID of $5,000, for a purchase price of $113,000. The note bears interest at 12%, which increases to 18% upon an event
of default. The note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable
conversion rate at a 40% discount to the lowest closing price during the previous twenty days to the conversion date. The conversion
rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion
price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price.
The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is
not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various
liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely
issuance of the shares upon receipt of a conversion request. In an event of default, as defined in the note, the “default
amount” shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest,
divided by (B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common
stock traded at any time between the issuance date and the date of the event of default. Per the agreement, the Company is required
at all times to have authorized and reserved eight times the number of shares that is actually issuable upon full conversion of
the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging
from 135% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the
date of issuance of the debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and
therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible, either
180 days after issuance or upon an event of default.
The
derivative liability was recognized on December 29, 2019, in the initial amount of $215,000, based on weighted probabilities of
assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the
Company’s common stock of $0.23 at issuance date; a risk-free interest rate of 1.60% and expected volatility of the Company’s
common stock, of 256.49%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated
fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $102,000 was immediately
expensed as financing costs.
Subsequent
to the year end the note was fully converted into 12,118,315 shares of the Company’s common stock at conversion prices ranging
from $0.01 to $0.009.
July
8, 2019 note
On
July 8, 2019, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with an accredited
investor, which matures on April 8, 2020. The holder may extend the maturity date up to one year, by written notice at least five
days before the original maturity date. The convertible note had an OID of $9,000, for a purchase price of $141,000. In an event
of default as set forth in the note, the interest rate increases to a default amount of 24%, and the default sum due becomes 200%
of the principal outstanding and accrued interest. The outstanding amount due under the note as of May 29, 2020, is in default
as of the date of this filing as the Company is delinquent in its periodic reporting under the Securities Act of 1934. Additionally,
if the market price of the Company’s common stock falls below $0.01, the principal shall increase by $25,000. The note is
convertible at a variable conversion rate of 60% of the lowest closing price during 20 days on which at least 100 shares of common
stock were traded prior to and including the conversion date, to be adjusted if in default. The discount increases by 15% discount
if there is a DTC “chill” in effect, the closing price falls below $0.095, the Company ceases to be a reporting company
pursuant to the 1934 Act, or the note cannot be converted into free trading shares after 181 days from the issuance date. The
discount also increases by 10% if the Company’s common shares are not deliverable via DWAC system. Additionally, if the
Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal
balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized
and reserved ten times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days
the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150% of the principal
and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a
derivative liability on the date the note becomes convertible.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $239,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.22 at issuance date; a risk-free interest rate of 1.99% and expected
volatility of the Company’s common stock, of 193.64%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $89,000 was immediately expensed as financing costs.
Subsequent
to the year end, approximately $143,000 of principal of the note was converted into 175,560,000 shares of the Company’s
common stock at conversion prices ranging from $0.007 to $0.0001.
July 31, 2019 note
On
July 31, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $200,000, convertible
into shares of common stock of the Company, which matures on April 30, 2020. In an event of default as set forth in the note,
the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance increases to
150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases to 200%.
If certain events of default, relating to the reporting requirements or listing of the Company’s common stock, occur or
continue after six months from the date of issuance of the note, the principal increases by $15,000. The outstanding amount due
under the note as of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its periodic reporting
under the Securities Act of 1934. The note is convertible into shares of Common Stock at a conversion price the lower of (i) the
lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or (ii) 60% of the lowest
trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the Company’s shares
are traded, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its
transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased
by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible”
for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note
shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied by the market
price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion
price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of principal,
not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten times the
number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the
reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During the
first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 150%
of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance
of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation and will be accounted for
as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $319,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.20 at issuance date; a risk-free interest rate of 2.0% and expected
volatility of the Company’s common stock, of 193.64%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $119,000 was immediately expensed as financing costs.
Subsequent
to the year end, approximately $158,000 of principal of the note was converted into 182,671,762 shares of the Company’s
common stock at conversion prices ranging from $0.006 to $0.0002.
August
23, 2019 note
On
August 23, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $110,000,
convertible into shares of common stock of the Company, which matures on August 23, 2020. The note has an OID of $10,000, for
a purchase price of $100,000. The note bears interest at 10%, which increases to 24% upon an event of default. If the note is
not paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal
shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive
days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is
convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price which shall equal
the lesser of: (i) $1.00; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion.
The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company
is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion
price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company is required at
all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the
note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging
from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time from the
date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first 180 days
but will meet the definition of a derivative when the conversion price becomes variable and would at that time require bifurcation
and to be accounted for as a derivative liability.
Subsequent
to the year end the note was fully converted into 30,777,250 shares of the Company’s common stock at conversion prices ranging
from $0.01 to $0.002.
August
27, 2019 note
On
August 27, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $82,500,
convertible into shares of common stock of the Company, which matures on August 27, 2020. The note has an OID of $7,500, for a
purchase price of $75,000. The note bears interest at 10%, which increases to 24% upon an event of default. If the note is not
paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal
shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive
days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The note is
convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion price which shall equal
the lesser of: (i) $1.00; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion.
The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally, if the Company
is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price of the conversion
price shall change to the lowest closing bid price during the delinquency period. The outstanding amount due under the note as
of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its periodic reporting under the
Securities Act of 1934. Per the agreement, the Company is required at all times to have authorized and reserved four times the
number of shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable
note is in effect, the Company may redeem the note at amounts ranging from 120% to 140% of the principal and accrued interest
balance, based on the redemption date’s passage of time from the date of issuance of the debenture. The conversion feature
does not meet the definition of a derivative during the first 180 days but will meet the definition of a derivative when the conversion
price becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
Subsequent
to the year end, approximately $65,000 of principal of the note was converted into 31,698,739 shares of the Company’s common
stock at conversion prices ranging from $0.006 to $0.0002.
September
3, 2019 first note
On
September 3, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $82,500
with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note
bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default
sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails
to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due
to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by
$15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior
to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased
by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible”
for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note
shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market
price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion
price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares
that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within
three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal
and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a
derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $122,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.72% and expected
volatility of the Company’s common stock, of 204.06%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $39,500 was immediately expensed as financing costs.
Subsequent
to the year end the note was fully converted into 97,347,476 shares of the Company’s common stock at conversion prices ranging
from $0.004 to $0.0004.
September
3, 2019 second note
On
September 3, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $82,500
with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note
bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default
sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails
to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due
to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by
$15,000. The outstanding amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company
is delinquent in its periodic reporting under the Securities Act of 1934. The note is convertible at the lessor of $0.40 or 65%
multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the
Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore,
if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less
than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable
conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent
sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times
to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If
the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount
of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may
redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s
passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative
and therefore requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $122,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.72% and expected
volatility of the Company’s common stock, of 204.06%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $39,500 was immediately expensed as financing costs.
Subsequent
to the year end, approximately $65,000 of principal of the note was converted into 54,767,424 shares of the Company’s common
stock at conversion prices ranging from $0.004 to $0.0009.
September
3, 2019 third note
On
September 3, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $82,500
with a purchase price of $75,000, convertible into shares of common stock of the Company, which matures on June 3, 2020. The note
bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default
sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails
to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due
to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by
$15,000. The note is convertible at the lessor of $0.40 or 65% multiplied by the lowest closing price during the 20 days prior
to the conversion. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable, and increased
by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC Eligible”
for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal amount of the note
shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 50% multiplied by the market
price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original conversion
price. Per the agreement, the Company is required at all times to have authorized and reserved six times the number of shares
that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish the reserve amount within
three days of request by the holder, the principal amount of the note shall increase by $5,000. During the first 180 days the
convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal
and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a
derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $122,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.17 at issuance date; a risk-free interest rate of 1.72% and expected
volatility of the Company’s common stock, of 204.06%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $39,500 was immediately expensed as financing costs.
Subsequent
to the year end the note was fully converted into 90,470,630 shares of the Company’s common stock at conversion prices ranging
from $0.004 to $0.0009.
September
13, 2019 note
On
September 13, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $395,000,
convertible into shares of common stock of the Company, which matures on April 21, 2020. The note has an OID of $39,500 for a
purchase price of $335,500, which is to be paid in two tranches of $167,750 each. The first tranche was funded on September 19,
2019, and the second tranche is to be funded nine months after the funding of the first tranche. The note bears interest at 12%,
which increases to 24% upon an event of default. Additionally, in the event of a default, for numerous events as set forth in
the agreement, the outstanding principal shall increase by 50%. The outstanding amount due under the note as of May 29, 2020,
is in default as of the date of this filing as the Company is delinquent in its periodic reporting under the Securities Act of
1934. The note is convertible at the lesser of: (i) $0.40; and (ii) 60% multiplied by the lowest closing bid price during the
20 days prior to the conversion. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than
the original conversion price. The discount will be increased by 12% for various occurrences as set forth in the agreement, including
if the Company is not DTC eligible or experiences a DTC “chill”, if the conversion price falls below $0.01, or if
the Company is delisted or delinquent in their filings with the SEC. Or the holder has the option to increase the principal by
$5,000 for each occurrence in place of increasing the discount to the conversion price. Per the agreement, the Company is required
at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of
the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at 140% of the
principal and accrued interest balance. The conversion feature meets the definition of a derivative and therefore requires bifurcation
and will be accounted for as a derivative liability.
In
connection with the September 13, 2019 note, the Company granted a number of warrants equal to $395,000 divided by the market
price which is defined as the conversion factor (60%) of the lowest closing bid price over the last 20 days to date of issuance
at inception, and to exercise date when the warrants are exercised, exercisable at $0.12, with a five year term. The exercise
price is adjustable upon any future dilutive issuance. The Company estimated the fair value of the warrants, which were calculated
as 5,486,111 warrants at issuance, using the Black Scholes pricing model. The key valuation assumptions used consist, in part,
of the price of the Company’s common stock of $0.14 at issuance date; a risk-free interest rate of 1.66% and expected volatility
of the Company’s common stock, of 175.0%, resulting in a fair value of $734,000.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $376,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.16 at issuance date; a risk-free interest rate of 1.92% and expected
volatility of the Company’s common stock, of 193.89%, and the various estimated reset exercise prices weighted by probability.
This, plus the fair value of the warrants, resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $922,500 was immediately expensed as financing costs.
Subsequent
to the year end, approximately $84,000 of principal of the note was converted into 123,100,000 shares of the Company’s common
stock at conversion prices ranging from $0.001 to $0.0002.
September
16, 2019 note
On
September 16, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $200,000,
convertible into shares of common stock of the Company, which matures on September 16, 2020. In an event of default as set forth
in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal balance
increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal increases
to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common stock,
occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. The outstanding
amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its
periodic reporting under the Securities Act of 1934. The note is convertible into shares of Common Stock at a conversion price
the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or
(ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the
Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received
by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DTC deliverable,
and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status as “DTC
Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date, the principal
amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean 40% multiplied
by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower than the original
conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation damages of 25% of
principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized and reserved ten
times the number of shares that is actually issuable upon full conversion of the note. If the Company does not maintain or replenish
the reserve amount within three days of request by the holder, the principal amount of the note shall increase by $5,000. During
the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135%
to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance
of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation and will be accounted for
as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $333,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.12 at issuance date; a risk-free interest rate of 1.86% and expected
volatility of the Company’s common stock, of 197.31%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $200,000 was immediately expensed as financing costs.
September
24, 2019 note
On
September 24, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $149,453,
convertible into shares of common stock of the Company, which matures on September 24, 2020. The note has an OID of $13,587, for
a purchase price of $135,866. The note bears interest at 8%, which increases to 24% upon an event of default. If the note is not
paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal
shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive
days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The outstanding
amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its
periodic reporting under the Securities Act of 1934. The note is convertible commencing six months after issuance of the note
(or upon an event of Default) at a conversion price equal to 60% multiplied by the lowest closing bid price during the 20 days
prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally,
if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price
of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company
is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 115% to 130% of the principal and accrued interest balance, based on the redemption date’s passage of time
from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first
180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require
bifurcation and to be accounted for as a derivative liability.
Subsequent
to the year end, approximately $67,000 of principal of the note was converted into 140,588,000 shares of the Company’s common
stock at conversion prices ranging from $0.001 to $0.0002.
October
1, 2019 note
On
October 1, 2019, the Company executed an 8% fixed convertible promissory note payable to an accredited investor in the principal
amount of $55,000 with a $5,000 OID, for a purchase price of $50,000, which is due on October 1, 2020. In the case of an event
of default, as defined in the agreement, the principal amount of the note increases to 150%. The outstanding amount due under
the note as of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its periodic reporting
under the Securities Act of 1934. The note is convertible into shares of Common Stock at a conversion price of 65% of the market
price, as defined in the note. The discount increases 15% if there is an event of default, and 10% if the shares are not deliverable
via DWAC. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging
from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s passage of time from the
date of issuance of the debenture. Per the agreement, the Company is required at all times to have authorized and reserved eight
times the number of shares that is actually issuable upon full conversion of the note. The conversion feature met the definition
of a derivative and required bifurcation and to be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $86,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.11 at issuance date; a risk-free interest rate of 1.73% and expected
volatility of the Company’s common stock, of 234.03%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $36,000 was immediately expensed as financing costs.
October
23, 2019 note
On
October 23, 2019, a fifth tranche on the June 13, 2018, for a 10% convertible promissory note in the amount of $30,000 was executed.
The note is due twelve months after payment. In an event of default as set forth in the note, the interest rate increases to a
default amount of 15%, and the default sum due becomes 150% of the principal outstanding and accrued interest. The outstanding
amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its
periodic reporting under the Securities Act of 1934. The note is convertible at a variable conversion rate of 65% of the lowest
closing price during 20 days prior to the conversion date. If at any time while the note is outstanding, the conversion price
is equal to or lower than $0.50, then an additional fifteen percent (15%) discount shall be factored into the conversion price.
The discount will also be increased by 10% if the Company’s common shares are not DTC deliverable. Additionally, if the
Company fails to comply with the reporting requirements of the Exchange Act (including but not limited to becoming late or delinquent
in its filings, even if the Company subsequently cures such delinquency), the discount shall be increased an additional 15%. Per
the agreement, the Company is required at all times to have authorized and reserved ten times the number of shares that is actually
issuable upon full conversion of the note. The conversion feature met the definition of a derivative and required bifurcation
and to be accounted for as a derivative liability. In connection with the fifth tranche, the Company issued 40,000 warrants, exercisable
at $0.75, with a five year term. The Company estimated the fair value of the warrants using the Black Scholes pricing model. The
key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.20 at issuance date; a
risk-free interest rate of 1.58% and expected volatility of the Company’s common stock, of 175.0%, resulting in a fair value
of $7,000.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $46,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.20 at issuance date; a risk-free interest rate of 1.58% and expected
volatility of the Company’s common stock, of 226.43%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $23,000 was immediately expensed as financing costs.
October
24, 2019 note
On
October 24, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $118,000,
convertible into shares of common stock of the Company, which matures on October 17, 2020. The convertible note had an OID of
$5,000, for a purchase price of $113,000. The note bears interest at 12%, which increases to 18% upon an event of default. The
note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable conversion rate
at a 40% discount to the lowest closing price during the previous twenty days to the conversion date. The conversion rate adjusts
if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion price,
in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount
increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or
DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages
for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the
shares upon receipt of a conversion request. In an event of default, as defined in the note, the “default amount”
shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by
(B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded
at any time between the issuance date and the date of the event of default. The outstanding amount due under the note as of May
29, 2020, is in default as of the date of this filing as the Company is delinquent in its periodic reporting under the Securities
Act of 1934. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of
shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is
in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance,
based on the redemption date’s passage of time from the date of issuance of the debenture, and at 150% after 180 days. The
conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative
liability on the date the note becomes convertible, either 180 days after issuance or upon an event of default.
Subsequent
to the year end, approximately $38,000 of principal of the note was converted into 110,140,665 shares of the Company’s common
stock at conversion prices ranging from $0.0005 to $0.0002.
October
29, 2019 first note
On
October 29, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $91,500
with a purchase price of $83,000, convertible into shares of common stock of the Company, which matures on July 29, 2020. If the
note is not paid at maturity date then the outstanding principal due under the note shall increase by $15,000. The note bears
interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default
sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails
to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due
to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by
$15,000. The outstanding amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company
is delinquent in its periodic reporting under the Securities Act of 1934. The note is convertible at the lessor of $0.30 or 65%
multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the
Company’s common shares are not DWAC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore,
if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less
than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable
conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent
sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times
to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If
the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount
of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may
redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s
passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative
and therefore requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $141,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.10 at issuance date; a risk-free interest rate of 1.59% and expected
volatility of the Company’s common stock, of 226.43%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $58,200 was immediately expensed as financing costs.
October
29, 2019 second note
On
October 29, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $91,500
with a purchase price of $83,000, convertible into shares of common stock of the Company, which matures on July 29, 2020. If the
note is not paid at maturity date then the outstanding principal due under the note shall increase by $15,000. The note bears
interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default
sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails
to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due
to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by
$15,000. The outstanding amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company
is delinquent in its periodic reporting under the Securities Act of 1934. The note is convertible at the lessor of $0.40 or 65%
multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the
Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore,
if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less
than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable
conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent
sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times
to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If
the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount
of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may
redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s
passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative
and therefore requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $141,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.10 at issuance date; a risk-free interest rate of 1.59% and expected
volatility of the Company’s common stock, of 226.43%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $58,200 was immediately expensed as financing costs.
October
29, 2019 third note
On
October 29, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $91,500
with a purchase price of $83,000, convertible into shares of common stock of the Company, which matures on July 29, 2020. If the
note is not paid at maturity date then the outstanding principal due under the note shall increase by $15,000. The note bears
interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default
sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails
to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due
to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by
$15,000. The outstanding amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company
is delinquent in its periodic reporting under the Securities Act of 1934. The note is convertible at the lessor of $0.40 or 65%
multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the
Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore,
if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less
than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable
conversion price shall be redefined to mean 50% multiplied by the market price. The conversion price shall be adjusted upon subsequent
sales of securities at a price lower than the original conversion price. Per the agreement, the Company is required at all times
to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the note. If
the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount
of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may
redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption date’s
passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of a derivative
and therefore requires bifurcation and will be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $141,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.10 at issuance date; a risk-free interest rate of 1.59% and expected
volatility of the Company’s common stock, of 226.43%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $58,200 was immediately expensed as financing costs.
December
10, 2019 note
On
December 10, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $180,000,
convertible into shares of common stock of the Company, which matures on December 10, 2020. The note has an OID of $13,587, for
a purchase price of $135,866. The note bears interest at 8%, which increases to 24% upon an event of default. If the note is not
paid at maturity, the outstanding principal shall increase by 10%. If the Company loses their bid price, the outstanding principal
shall increase by 20%, and if the Company is delisted or the trading of the common stock is suspended for more than ten consecutive
days or the Company ceases to file 1934 Act reports with the SEC, the outstanding principal shall increase by 50%. The outstanding
amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its
periodic reporting under the Securities Act of 1934. The note is convertible commencing six months after issuance of the note
(or upon an event of Default) at a conversion price equal to 60% multiplied by the lowest closing bid price during the 20 days
prior to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally,
if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price
of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company
is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 115% to 130% of the principal and accrued interest balance, based on the redemption date’s passage of time
from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first
180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require
bifurcation and to be accounted for as a derivative liability.
December
19, 2019 note
On
December 19, 2019, the Company, through its subsidiary, KinerjaPay Ltd, entered into an assignment agreement with an accredited
investor for $100,000 of the May 29, 2019 note (see discussion previously). In connection, the Company entered into a new convertible
note with Draper, Inc., effective as of May 29, 2019, for the principal amount of $100,000, convertible into shares of common
stock of the Company, which matures on December 19, 2020. The note bears interest at 10%, which increases to 22% upon an event
of default. If the note is not paid at maturity, the outstanding principal shall increase by 10%. The note is convertible at a
conversion price equal to 60% multiplied by the lowest closing bid price during the 20 days prior to the conversion. Additionally,
six months after the issuance of the new note, the lender has the right to redeem all of any portion of the note, either in cash
or in conversion shares. In the event of a default, as set forth in the agreement, the lender may accelerate the note by written
notice, or may elect to increase the outstanding balance by applying the amount resulting from the default. The outstanding amount
due under the note as of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its periodic
reporting under the Securities Act of 1934. The Company may prepay the note at any time, at an amount in cash equal to 110% multiplied
by the outstanding balance the Company elects to prepay. The conversion feature meets the definition of a derivative and therefore
requires bifurcation and is to be accounted for as a derivative liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $180,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.03 at issuance date; a risk-free interest rate of 1.59% and expected
volatility of the Company’s common stock, of 230.94%, and the various estimated reset exercise prices weighted by probability.
This and the warrants fair value resulted in the calculated fair value of the debt discount being greater than the face amount
of the debt, and the excess amount of $80,000 was immediately expensed as financing costs.
In
December 24, 2019, $10,000 of the note was converted into 533,334 shares of the Company’s common stock at a conversion price
of $0.02, at which time the derivative fair value of approximately $18,000 relating to the conversion feature was reclassified
to equity. The derivative was revalued prior to reclassification, resulting in no change in the fair value, with the key valuations
assumptions consisting, in part, of the price of the Company’s common stock of $0.4; a risk-free interest rate of 1.59%
and expected volatility of the Company’s common stock, of 230.94%, and the various estimated reset exercise prices weighted
by probability.
December
23, 2019 first note
On
December 23, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $31,000
with a purchase price of $26,500, convertible into shares of common stock of the Company, which matures on December 23, 2020.
If the note is not paid at maturity date then the outstanding principal due under the note shall increase by $15,000. The note
bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default
sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails
to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due
to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by
$15,000. The outstanding amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company
is delinquent in its periodic reporting under the Securities Act of 1934. The note is convertible at the lessor of $0.15 or 65%
multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the
Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore,
if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less
than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable
conversion price shall be redefined to mean 50% multiplied by the market price. Per the agreement, the Company is required at
all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the
note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal
amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of
a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
In
connection with the note, the Company issued 180,000 warrants, exercisable at $0.15, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.03 at issuance date; a risk-free interest rate of 1.69% and expected volatility
of the Company’s common stock, of 182.1%, resulting in a fair value of $5,000.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $39,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.03 at issuance date; a risk-free interest rate of 1.59% and expected
volatility of the Company’s common stock, of 230.94%, and the various estimated reset exercise prices weighted by probability.
This and the warrants fair value resulted in the calculated fair value of the debt discount being greater than the face amount
of the debt, and the excess amount of $17,500 was immediately expensed as financing costs.
December
23, 2019 second note
On
December 23, 2019, the Company entered into a convertible note with an accredited investor for the principal amount of $31,000
with a purchase price of $26,500, convertible into shares of common stock of the Company, which matures on December 23, 2020.
If the note is not paid at maturity date then the outstanding principal due under the note shall increase by $15,000. The note
bears interest at 8%, which increases to 24% upon an event of default. In an event of default as set forth in the note, the default
sum becomes 150% of the principal outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails
to reserve sufficient authorized shares, then the default sum increases to 200%. Additionally, if the Company is in default due
to a failure to comply with the Exchange Act, is delisted, or the Company loses its bid price, the principal shall increase by
$15,000. The outstanding amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company
is delinquent in its periodic reporting under the Securities Act of 1934. The note is convertible at the lessor of $0.15 or 65%
multiplied by the lowest closing price during the 20 days prior to the conversion. The discount will be increased by 10% if the
Company’s common shares are not DTC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore,
if the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less
than $0.01 at any time after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable
conversion price shall be redefined to mean 50% multiplied by the market price. Per the agreement, the Company is required at
all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion of the
note. If the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal
amount of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company
may redeem the note at amounts ranging from 115% to 145% of the principal and accrued interest balance, based on the redemption
date’s passage of time ranging from the date of issuance of the debenture. The conversion feature meets the definition of
a derivative and therefore requires bifurcation and will be accounted for as a derivative liability.
In
connection with the note, the Company issued 180,000 warrants, exercisable at $0.15, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.03 at issuance date; a risk-free interest rate of 1.69% and expected volatility
of the Company’s common stock, of 182.1%, resulting in a fair value of $5,000.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $333,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.12 at issuance date; a risk-free interest rate of 1.86% and expected
volatility of the Company’s common stock, of 197.31%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $200,000 was immediately expensed as financing costs.
2018
Convertible notes payable:
June
13, 2018 note
On
June 13, 2018, the Company executed a 10% convertible promissory note payable to an accredited investor in the principal amount
of $225,000, with an OID of $22,500. The first tranche of the note, in the principal amount of $75,000, with an OID of $7,500
for net cash receipt of $67,500, was paid at closing. The accredited investor may pay, in its sole discretion, such additional
amounts of the consideration and at such dates as the holder may choose in its sole discretion. On August 21, 2018, a second tranche,
for a 10% convertible promissory note in the amount of $25,000 was executed. On January 10, 2019, a third tranche, for a 10% convertible
promissory note in the amount of $50,000 was executed. On February 15, 2019, a fourth tranche, for a 10% convertible promissory
note in the amount of $35,000 was executed. Each tranche shall be due twelve months after payment. In an event of default as set
forth in the note, the interest rate increases to a default amount of 15%, and the default sum due becomes 150% of the principal
outstanding and accrued interest. As of December 31, 2018, the note was in default due to the Company being delinquent in their
filings under the Exchange Act with the SEC, and therefore the note principal balance on the first tranche was increased by $37,500.
As a result, the outstanding balance of the first tranche as of December 31, 2018, was $112,500. The note principal balance on
the second tranche was increased by $12,500. As a result, the outstanding balance of the second tranche as of December 31, 2018,
was $37,500. The note is convertible at a variable conversion rate of 65% of the lowest closing price during 20 days prior to
the conversion date. If at any time while the note is outstanding, the conversion price is equal to or lower than $0.50, then
an additional fifteen percent (15%) discount shall be factored into the conversion price. The discount will also be increased
by 10% if the Company’s common shares are not DTC deliverable. Additionally, if the Company fails to comply with the reporting
requirements of the Exchange Act (including but not limited to becoming late or delinquent in its filings, even if the Company
subsequently cures such delinquency), the discount shall be increased an additional 15%. Per the agreement, the Company is required
at all times to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of
the note. The conversion feature met the definition of a derivative and required bifurcation and to be accounted for as a derivative
liability.
The
Company estimated the fair value of the conversion feature derivative embedded in the first tranche at issuance at $100,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the
date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.20; a risk-free interest
rate of 2.69% and expected volatility of the Company’s common stock, of 158.40%, and the various estimated reset exercise
prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount
of the debt, and the excess amount of $25,000 was immediately expensed as financing costs.
The
Company estimated the fair value of the conversion feature derivative embedded in the second tranche at issuance at $36,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the
date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.46; a risk-free interest
rate of 2.45% and expected volatility of the Company’s common stock, of 167.29%, and the various estimated reset exercise
prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount
of the debt, and the excess amount of $11,000 was immediately expensed as financing costs.
The
Company estimated the fair value of the conversion feature derivative embedded in the third tranche at issuance at $50,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the
date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.46; a risk-free interest
rate of 2.45% and expected volatility of the Company’s common stock, of 167.29%, and the various estimated reset exercise
prices weighted by probability.
The
Company estimated the fair value of the conversion feature derivative embedded in the fourth tranche at issuance at $39,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used as of the
date the derivative was recognized consist, in part, of the price of the Company’s common stock of $0.46; a risk-free interest
rate of 2.45% and expected volatility of the Company’s common stock, of 167.29%, and the various estimated reset exercise
prices weighted by probability. This, and the $15,000 fair value of the warrants issued, resulted in the calculated fair value
of the debt discount being greater than the face amount of the debt, and the excess amount of $19,000 was immediately expensed
as financing costs.
In
connection with the fourth tranche, the Company issued 66,666 warrants, exercisable at $0.75, with a five year term. The Company
estimated the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in
part, of the price of the Company’s common stock of $0.26 at issuance date; a risk-free interest rate of 2.23% and expected
volatility of the Company’s common stock, of 158.6%, resulting in a fair value of $15,000.
At
four various dates during January 2019, the holder fully converted the $112,500 principal plus $5,370 of accrued interest and
$2,000 of fees, of the first tranche, into 2,148,368 shares of common stock of the Company, at a conversion price of $0.06. At
conversion the derivative fair value of $173,000 relating to the conversion feature was reclassified to equity. The derivative
was revalued prior to reclassification, with an increase in fair value of $24,000 with the key valuations assumptions consisting,
in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest rate of 2.47% and expected
volatility of the Company’s common stock, of 158.11%, and the various estimated reset exercise prices weighted by probability.
Upon conversion the remaining unamortized debt discount was also immediately expensed.
At
three various dates during January and February 2019, the holder converted $31,008 of the principal of the second tranche, leaving
approximately $6,500 of principal outstanding at March 31, 2019, into 548,001 shares of common stock of the Company, at a conversion
price of $0.06. At conversion the derivative fair value of $88,000 relating to the conversion feature was reclassified to equity.
The derivative was revalued prior to reclassification with an increase in fair value of $55,000 with the key valuations assumptions
consisting, in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest rate of
2.51% and expected volatility of the Company’s common stock, of 189.34%, and the various estimated reset exercise prices
weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed. On July 7, 2019,
the remaining approximately $6,500 of principal and $2000 of interest was converted into 261,348 shares of common stock of the
Company, at a conversion price of $0.04.
At
two dates during the third quarter of 2019, the holder converted approximately $43,000 of principal, of the third tranche, into
1,150,000 shares of common stock of the Company, at a conversion prices of $0.03 to $0.04. At conversion the derivative fair value
of $49,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification,
with an increase in fair value of $17,000 with the key valuations assumptions consisting, in part, of the price of the Company’s
common stock on the date of conversion; a risk-free interest rate of 2.44% and expected volatility of the Company’s common
stock, of 172.14%, and the various estimated reset exercise prices weighted by probability. Upon conversion the related unamortized
debt discount was also immediately expensed.
In
October 2019 the holder converted the remaining $24,250 of principal, of the third tranche, into 1,261,029 shares of common stock
of the Company, at a conversion price of $0.02. At conversion the derivative fair value of $49,000 relating to the conversion
feature was reclassified to equity. The derivative was revalued prior to reclassification, with an increase in fair value of $17,000
with the key valuations assumptions consisting, in part, of the price of the Company’s common stock on the date of conversion;
a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 172.14%, and the various estimated
reset exercise prices weighted by probability. Upon conversion the related unamortized debt discount was also immediately expensed.
In
various dates during the fourth quarter of 2019, the holder converted $44,070 of the fourth tranche, into 2,800, 000 shares of
common stock of the Company, at conversion prices of $0.02 to $0.01. At conversion the derivative fair value of $49,000 relating
to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, with an increase
in fair value of $17,000 with the key valuations assumptions consisting, in part, of the price of the Company’s common stock
on the date of conversion; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of
172.14%, and the various estimated reset exercise prices weighted by probability. Upon conversion the related unamortized debt
discount was also immediately expensed. Subsequent to year end, the remaining balance was fully converted, at a conversion price
of $0.01.
July
27, 2018 note
On
July 27, 2018, the Company executed an 8% fixed back-end convertible promissory note payable to an accredited investor in the
principal amount of $115,000, and is due on March 27, 2019. The note is convertible into shares of Common Stock at a conversion
price of $1.30 per share if converted within 5 months, or thereafter the conversion price shall be equal to the lower of (i) the
fixed price or (ii) 65% of the average of the two (2) lowest trading prices of the Common Stock as reported on the National Quotations
Bureau OTC market on which the Company’s shares are traded, for the twenty (20) prior trading days including the day upon
which a notice of conversion is received by the Company or its transfer agent. The conversion feature does not meet the definition
of a derivative during the first 180 days but will meet the definition of a derivative when the conversion price becomes variable
and will at that time require bifurcation and to be accounted for as a derivative liability.
On
January 24, 2019 the Company recognized the derivative liability. The Company estimated the fair value of the conversion feature
derivative embedded in the debenture at $119,000, based on weighted probabilities of assumptions used in the Black Scholes pricing
model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s
common stock of $0.41; a risk-free interest rate of 2.42% and expected volatility of the Company’s common stock, of 317.80%,
and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt
discount being greater than the face amount of the debt, and the excess amount of $4,000 was immediately expensed as financing
costs.
On
January 24, 2019, the holder converted approximately $114,000 principal plus $2,262 of accrued interest into 1,460,000 shares
of common stock of the Company, at a conversion price of $0.08, leaving a principal balance of approximately $1,000 outstanding
as of March 31, 2019. At conversion the derivative fair value of $109,000 relating to the conversion feature was reclassified
to equity. The derivative was revalued prior to reclassification with a decrease in fair value of $10,000 with the key valuations
assumptions consisting, in part, of the price of the Company’s common stock on the date of conversion; a risk-free interest
rate of 2.50% and expected volatility of the Company’s common stock, of 189.34%, and the various estimated reset exercise
prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
July
19, 2018 note
On
July 19, 2018, the Company entered into two 10% convertible redeemable notes to an accredited investor in the aggregate principal
amount of $250,000, convertible into shares of common stock of the Company, with maturity dates of July 19, 2019. Each note was
in the face amount of $125,000, with an original issue discount of $5,000, resulting in a purchase price for each note of $120,000.
The first of the two notes was paid for by the buyer in cash upon closing, with the second note initially paid for by the issuance
of an offsetting $120,000 secured promissory note issued to the Company by the buyer (“Buyer Note”). The notes are
convertible beginning six months after issuance, at the lower of (i) $0.60 or (ii) 65% of the lowest of trading price for last
20 days, with the discount increased to 45% in the event of a DTC chill. The second note is not convertible until the buyer has
settled the Buyer Note in cash payment, which must be funded by March 20, 2019. The Buyer Note was funded on January 17, 2019,
for gross proceeds of $114,000. The Buyer Note is included in Notes Receivable in the accompanying financial statements as of
December 31, 2018. During the first six months, the convertible redeemable notes are in effect, the Company may redeem the note
at amounts ranging from 113% to 137% of the principal and accrued interest balance, based on the redemption date’s passage
of time ranging from 60 days to 180 days from the date of issuance of each debenture. The conversion feature does not meet the
definition of a derivative during the first six months, but will meet the definition of a derivative when the conversion price
becomes variable and would at that time require bifurcation and to be accounted for as a derivative liability.
On
January 20, 2019 the Company recognized the derivative liability related to the two notes. The Company estimated the fair value
of the conversion feature derivative embedded in the debentures at $237,000, based on weighted probabilities of assumptions used
in the Black Scholes pricing model. The key valuation assumptions used as of the date the derivative was recognized consist, in
part, of the price of the Company’s common stock of $0.64; a risk-free interest rate of 2.51% and expected volatility of
the Company’s common stock, of 189.34%, and the various estimated reset exercise prices weighted by probability.
On
two dates during January and February 2019, the holder fully converted the $125,000 principal plus $6,331 of accrued interest,
into 1,572,550 shares of common stock of the Company, at conversion prices ranging from $.08 to $0.12. At conversion the derivative
fair value of $84,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification
with an decrease in fair value of $30,000 with the key valuations assumptions consisting, in part, of the price of the Company’s
common stock on the date of conversion; a risk-free interest rate of 2.51% and expected volatility of the Company’s common
stock, of 189.34%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized
debt discount was also immediately expensed.
On
February 6, 2019, the holder fully converted the $125,000 principal of the back-end note, into 709,837shares of common stock of
the Company at a conversion price of $0.18. At conversion the derivative fair value of $88,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification with a decrease in fair value of $35,000 with
the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.65; a risk-free interest
rate of 2.50% and expected volatility of the Company’s common stock, of 211.48%, and the various estimated reset exercise
prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
July
30, 2018 note
On
July 30, 2018, the Company executed an 12% fixed convertible promissory note payable to an accredited investor in the principal
amount of $53,000, and is due on May 15, 2019. In an event of default as set forth in the note, the interest rate increases to
a default amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company
cannot deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As
of December 31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with
the SEC, and therefore the note principal balance was increased by $26,500. As a result, the outstanding balance of the note as
of December 31, 2018, was $79,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion
price of $1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall
equal the lesser of: (i) $1.75; and (ii) 65% multiplied by the market price, as defined in the agreement. Per the agreement, the
Company is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon
full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the
note at amounts ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative
during the first 180 days, but will meet the definition of a derivative when the conversion price becomes variable and would at
that time require bifurcation and to be accounted for as a derivative liability.
On
January 30, 2019 the Company recognized the derivative liability. The Company estimated the fair value of the conversion feature
derivative embedded in the debenture at $82,000, based on weighted probabilities of assumptions used in the Black Scholes pricing
model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s
common stock of $0.67; a risk-free interest rate of 2.42% and expected volatility of the Company’s common stock, of 317.80%,
and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt
discount being greater than the face amount of the debt, and the excess amount of $2,400 was immediately expensed as financing
costs.
On
two dates during February 2019, the holder fully converted the $79,500 principal plus $3,180 of accrued interest, into 361,869
shares of common stock of the Company, at conversion prices ranging from $.21 to $0.25. At conversion the derivative fair value
of $68,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification
with a decrease in fair value of $14,000 with the key valuations assumptions consisting, in part, of the price of the Company’s
common stock on the date of conversion; a risk-free interest rate of 2.40% and expected volatility of the Company’s common
stock, of 222.18%, and the various estimated reset exercise prices weighted by probability. Upon conversion the remaining unamortized
debt discount was also immediately expensed.
September
11, 2018 note
On
September 11, 2018, the Company executed an 12% fixed convertible promissory note payable to an accredited investor in the principal
amount of $53,000, due on June 30, 2019. In an event of default as set forth in the note, the interest rate increases to a default
amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot
deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December
31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and
therefore the note principal balance was increased by $26,500. As a result, the outstanding balance of the note as of December
31, 2018, was $79,500. The note is convertible for 180 days from inception into shares of Common Stock at a conversion price of
$1.75 per share, subject to adjustment based upon the terms of the note. After the 180 days the conversion price shall equal the
lesser of: (i) $1.75; and (ii) 65% multiplied by the market price, as defined in the agreement. Per the agreement, the Company
is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 115% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time
from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first
180 days, but will meet the definition of a derivative when the conversion price becomes variable and would at that time require
bifurcation and to be accounted for as a derivative liability.
On
March 11, 2019, the Company recognized the derivative liability. The Company estimated the fair value of the conversion feature
derivative embedded in the debenture at $68,000, based on weighted probabilities of assumptions used in the Black Scholes pricing
model. The key valuation assumptions used as of the date the derivative was recognized consist, in part, of the price of the Company’s
common stock of $0.50; a risk-free interest rate of 2.46% and expected volatility of the Company’s common stock, of 222.18%,
and the various estimated reset exercise prices weighted by probability.
On
two dates during March 2019, the holder fully converted the $79,500 principal into 295,327 shares of common stock of the Company,
at conversion prices ranging from $.27 to $0.29. At conversion the derivative fair value of $61,000 relating to the conversion
feature was reclassified to equity. The derivative was revalued prior to reclassification with an increase in fair value of $68,000
with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of on the date of conversion;
a risk-free interest rate of 2.45% and expected volatility of the Company’s common stock, of 222.18%, and the various estimated
reset exercise prices weighted by probability. Upon conversion the remaining unamortized debt discount was also immediately expensed.
October
11, 2018 first note
On
October 11, 2018, the Company entered into a convertible note with an accredited investor for the principal amount of $55,000,
convertible into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases
to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal
outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized
shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent
in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a
result the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser of: (i)
$1.75; and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note, and (iii)
65% multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales of securities
at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC eligible, or if
the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally, if the
Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal
balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days
the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal
and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a
derivative liability on the date the note becomes convertible.
In
connection with the note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000. The warrants were exercised on April 24,
2019, in a cashless exercise, resulting in the issuance of 264,000 shares of the Company’s common stock.
The
Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000,
based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected
volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $52,000 was immediately expensed as financing costs.
The
note was fully converted on several dates in the second quarter of 2019, at which time the derivative fair value of $69,000 relating
to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease
in the fair value of $2,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common
stock of $0.65; a risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 143.85%, and
the various estimated reset exercise prices weighted by probability.
October
11, 2018 second note
On
October 11, 2018, the Company entered into a convertible note with an accredited investor for the principal amount of $55,000,
convertible into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases
to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal
outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized
shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent
in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a
result the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser of: (i)
$1.75; and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note, and (iii)
65% multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales of securities
at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC eligible, or if
the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally, if the
Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal
balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days
the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal
and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a
derivative liability on the date the note becomes convertible.
In
connection with the note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000. The warrants were exercised on December
23, 2019, in a cashless exercise, resulting in the issuance of 2,251,604 shares of the Company’s common stock.
The
Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000,
based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected
volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $52,000 was immediately expensed as financing costs.
The
October 2018 second note was fully converted on several dates in the second quarter of 2019, at which time the derivative fair
value of $69,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification,
resulting in a decrease in the fair value of $2,000, with the key valuations assumptions consisting, in part, of the price of
the Company’s common stock of $0.65; a risk-free interest rate of 2.44% and expected volatility of the Company’s common
stock, of 143.85%, and the various estimated reset exercise prices weighted by probability.
October
11, 2018 third note
On
October 11, 2018, the Company entered into a convertible note with an accredited investor for the principal amount of $55,000,
convertible into shares of common stock of the Company, which matures on July 11, 2019. The note bears interest at 8%, which increases
to 24% upon an event of default. In an event of default as set forth in the note, the default sum becomes 150% of the principal
outstanding and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized
shares, then the default sum increases to 200%. As of December 31, 2018, the note was in default due to the Company being delinquent
in their filings under the Exchange Act with the SEC, and therefore the note principal balance was increased by $27,500. As a
result the outstanding balance of the note as of December 31, 2018, was $82,500. The note is convertible at the lesser of: (i)
$1.75; and (ii) 65% multiplied by lowest end of day VWAP during the previous 20 days before the Issue date of the note, and (iii)
65% multiplied by the market price (as defined in the note. The conversion price shall be adjusted upon subsequent sales of securities
at a price lower than the original conversion price. The discount is increased to 50% if the Company is not DTC eligible, or if
the conversion price falls to below $0.01, and the principal amount of the note shall increase by $15,000. Additionally, if the
Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be liquidation damages of 25% of the outstanding principal
balance of the debt, but not to be less than $15,000. Per the agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days
the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 145% of the principal
and accrued interest balance, based on the redemption date’s passage of time ranging from the date of issuance of the debenture.
The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a
derivative liability on the date the note becomes convertible.
In
connection with the note, the Company issued 150,000 warrants, exercisable at $0.34, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 3.0% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $37,000. The warrants were exercised on December
23, 2019, in a cashless exercise, resulting in the issuance of 2,251,604 shares of the Company’s common stock.
The
Company estimated the aggregate fair value of the conversion feature derivatives embedded in the debenture at issuance at $70,000,
based on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.27 at issuance date; a risk-free interest rate of 2.66% and expected
volatility of the Company’s common stock, of 141.14%, and the various estimated reset exercise prices weighted by probability.
This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess
amount of $52,000 was immediately expensed as financing costs.
The
October 11, 2018 third note was fully converted on several dates in the second quarter of 2019, at which time the derivative fair
value of $69,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification,
resulting in a decrease in the fair value of $2,000, with the key valuations assumptions consisting, in part, of the price of
the Company’s common stock of $0.65; a risk-free interest rate of 2.44% and expected volatility of the Company’s common
stock, of 143.85%, and the various estimated reset exercise prices weighted by probability.
October
16, 2018 note
On
October 16, 2018, the Company entered into a 12% convertible note with an accredited investor for the principal amount of $43,000,
convertible into shares of common stock of the Company, which matures on July 30, 2019. In an event of default as set forth in
the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding
and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then
the default sum increases to 200%. The note was in default due to the Company being delinquent in their filings under the Exchange
Act, and therefore the principal was increased 50%, to $64,500, with the increase being recognized as a penalty expense in the
accompanying Statement of Operations. The note is convertible during first 180 days after issuance at a fixed conversion price
of $1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 65%
multiplied by the market price (as defined in the note). The conversion feature does not meet the definition of a derivative during
the first 180 days but will meet the definition of a derivative when the conversion price becomes variable and will at that time
require bifurcation and to be accounted for as a derivative liability. During the first 180 days the convertible redeemable note
is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal and accrued interest balance,
based on the redemption date’s passage of time from the date of issuance of the debenture. Per the agreement, the Company
is required at all times to have authorized and reserved six times the number of shares that is actually issuable upon full conversion
of the note.
The
note was fully converted on April 24, 2019, at which time the derivative fair value of $55,000 relating to the conversion feature
was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of
$25,000, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.65; a
risk-free interest rate of 2.44% and expected volatility of the Company’s common stock, of 222.18%, and the various estimated
reset exercise prices weighted by probability.
October
29, 2018 note
On
October 29, 2018, the Company entered into a 12% convertible note for the principal amount of $118,000 with an accredited investor,
which matures on October 29, 2019, and has a $5,000 OID. The note is convertible commencing 180 days after issuance of the note
(or upon an event of Default), with a variable conversion rate at 60% of market price (as defined in the note). The conversion
rate adjusts if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion
price, in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price.
The discount increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is
not DWAC or DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various
liquidated damages for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely
issuance of the shares upon receipt of a conversion request. Per the agreement, the Company is required at all times to have authorized
and reserved eight times the number of shares that is actually issuable upon full conversion of the note. During the first 180
days the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the
principal and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the
debenture, and at 150% after 180 days. The conversion feature meets the definition of a derivative and therefore requires bifurcation
and will be accounted for as a derivative liability on the date the note becomes convertible, either 180 days after issuance or
upon an event of default. The derivative liability was recognized on April 27, 2019, in the initial amount of $177,000 based on
the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.62; a risk-free interest
rate of 2.46% and expected volatility of the Company’s common stock, of 200.74%, and the various estimated reset exercise
prices weighted by probability.
The
note was fully converted on several dates in the second quarter of 2019, at which time the derivative fair value of approximately
$114,000 relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification,
resulting in a decrease in the fair value of approximately $63,000, with the key valuations assumptions consisting, in part, of
the price of the Company’s common stock on the dates converted; a risk-free interest rate ranging from 2.29% to 2.45% and
expected volatility of the Company’s common stock ranging from 143.85% to 172.14%, and the various estimated reset exercise
prices weighted by probability.
October
31, 2018 note
On
October 31, 2018, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with an accredited
investor, which matures on July 31, 2019. In an event of default as set forth in the note, the interest rate increases to a default
amount of 22%, and the default sum due becomes 150% of the principal outstanding and accrued interest, and if the Company cannot
deliver conversion shares or fails to reserve sufficient authorized shares, then the default sum increases to 200%. As of December
31, 2018, the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and
therefore the note principal balance was increased by $75,000. As a result, the outstanding balance of the note as of December
31, 2018, was $225,000. The note is convertible at a variable conversion rate lessor of (i) lowest closing price during the previous
25 trading day period, prior to the date of note and (ii) the variable price, which is 60% by market price (lowest closing price
for 25 days prior to conversion). The discount increases by 15% discount if there is a DTC “chill” in effect., and
an additional 10% if the Company is not DWAC eligible. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10)
transaction, there shall be liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than
$15,000. The conversion price is adjusted if any 3rd party has the right to convert monies at a discount to market greater than
the conversion price in effect at that time then the holder, may utilize such greater discount percentage. Per the agreement,
the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable
upon full conversion of the note. If the Company does not maintain the reserve shares or fails to replenish then within 3 days
of request, the principal balance increases by $5,000. During the first 180 days the convertible redeemable note is in effect,
the Company may redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the
redemption date’s passage of time from the date of issuance of the debenture. The conversion feature meets the definition
of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes
convertible.
In
connection with the note, the Company issued 375,000 warrants, exercisable at $0.20, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.24 at issuance date; a risk-free interest rate of 2.91% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $83,000. On August 23, 2019, 1,765,843 shares of
the Company’s common stock was issued upon the cashless exercise of the 375,000 warrants.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $214,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.24% and expected
volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $147,000 was immediately expensed as financing costs.
On
several dates in June 2019, $94,638 of the note was converted, at which time the derivative fair value of approximately $72,000
relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting
in a decrease in the fair value of $46,000, with the key valuations assumptions consisting, in part, of the price of the Company’s
common stock of $0.23; a risk-free interest rate of 2.27% and expected volatility of the Company’s common stock of 172.14%,
and the various estimated reset exercise prices weighted by probability.
On
July 26, 2019, $55,362 of the note was converted into 1,193,058 shares of the Company’s common stock at a conversion price
of $0.05, at which time the derivative fair value of approximately $63,000 relating to the conversion feature was reclassified
to equity. The derivative was revalued prior to reclassification, resulting in a decrease in the fair value of $105,000, with
the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.19; a risk-free interest
rate of 2.44% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset exercise
prices weighted by probability.
October
31, 2018 note
On
October 31, 2018, the Company entered into a 12% convertible promissory note in the principal amount of $150,000 with an accredited
investor, which matures on July 31, 2019. In an event of default as set forth in the note, the interest rate increases to a default
amount of 22%, and the default sum due becomes 200% of the principal outstanding and accrued interest. Additionally, if the market
price of the Company’s common stock falls below $0.01, the principal shall increase by $25,000. As of December 31, 2018,
the note was in default due to the Company being delinquent in their filings under the Exchange Act with the SEC, and therefore
the note principal balance was increased by $150,000. As a result, the outstanding balance of the note as of December 31, 2018,
was $300,000. The note is convertible at a variable conversion rate lessor of (i) the closing price on the day preceding the issue
date and (ii) 60% of either the lowest closing price during 25 days prior to and including the conversion date, or the closing
bid price, whichever is lower. The discount increases by 15% discount if there is a DTC “chill” in effect or closing
price falls below $0.05875. Additionally, if the Company enters into a Section 3(a)(9) or 3(a)(10) transaction, there shall be
liquidation damages of 25% of the outstanding principal balance of the debt, but not to be less than $15,000. Per the agreement,
the Company is required at all times to have authorized and reserved ten times the number of shares that is actually issuable
upon full conversion of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem
the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and therefore
requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible.
In
connection with the note, the Company issued 312,500 warrants, exercisable at $0.24, with a five year term. The Company estimated
the fair value of the warrants using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.24 at issuance date; a risk-free interest rate of 2.91% and expected volatility
of the Company’s common stock, of 158.6%, resulting in a fair value of $68,000.
The
Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $214,000, based
on weighted probabilities of assumptions used in the Black Scholes pricing model. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.09 at issuance date; a risk-free interest rate of 2.24% and expected
volatility of the Company’s common stock, of 272.06%, and the various estimated reset exercise prices weighted by probability.
This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face
amount of the debt, and the excess amount of $132,000 was immediately expensed as financing costs.
On
several dates in June 2019, $140,206 of the note was converted, at which time the derivative fair value of approximately $122,000
relating to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting
in a decrease in the fair value of $29,000, with the key valuations assumptions consisting, in part, of the price of the Company’s
common stock of $0.24; a risk-free interest rate of 2.33% and expected volatility of the Company’s common stock of 172.14%,
and the various estimated reset exercise prices weighted by probability.
On
July 26, 2019, $28,300 of principal and $13,506 of accrued interest of the note was converted into 503,710 shares of the Company’s
common stock at a conversion price of $0.05, at which time the derivative fair value of approximately $36,000 relating to the
conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, with no change in the fair
value, with the key valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.21; a risk-free
interest rate of 2.33% and expected volatility of the Company’s common stock of 172.14%, and the various estimated reset
exercise prices weighted by probability.
December
3, 2018 note
On
December 3, 2018, the Company entered into a 12% convertible note with an accredited investor, for the principal amount of $53,000,
convertible into shares of common stock of the Company, which matures on September 15, 2019. In an event of default as set forth
in the note, the interest rate increases to a default amount of 22%, and the default sum due becomes 150% of the principal outstanding
and accrued interest, and if the Company cannot deliver conversion shares or fails to reserve sufficient authorized shares, then
the default sum increases to 200%. The note is convertible during first 180 days after issuance at a fixed conversion price of
$1.75. After the initial conversion period, the conversion price shall equal the lesser of: (i) the fixed price; and (ii) 65%
multiplied by the market price (as defined in the note). Per the agreement, the Company is required at all times to have authorized
and reserved six times the number of shares that is actually issuable upon full conversion of the note. During the first 180 days
the convertible redeemable note is in effect, the Company may redeem the note at amounts ranging from 115% to 140% of the principal
and accrued interest balance, based on the redemption date’s passage of time from the date of issuance of the debenture.
The conversion feature does not meet the definition of a derivative during the first 180 days but will meet the definition of
a derivative when the conversion price becomes variable and will at that time require bifurcation and to be accounted for as a
derivative liability. The derivative liability was recognized on June 1, 2019, in the initial amount of $87,000 based on the key
valuations assumptions consisting, in part, of the price of the Company’s common stock of $0.43; a risk-free interest rate
of 2.35% and expected volatility of the Company’s common stock, of 143.85%, and the various estimated reset exercise prices
weighted by probability.
The
note was fully converted on several dates in June 2019, at which time the derivative fair value of approximately $61,000 relating
to the conversion feature was reclassified to equity. The derivative was revalued prior to reclassification, resulting in a decrease
in the fair value of approximately $26,000, with the key valuations assumptions consisting, in part, of the price of the Company’s
common stock of $0.23; a risk-free interest rate of 2.33% and expected volatility of the Company’s common stock of 172.14%,
and the various estimated reset exercise prices weighted by probability.
Several
of the notes were in default at certain times during the year ended December 31, 2018 and through the second quarter of 2019,
due to the Company being delinquent in their filings under the Exchange Act with the SEC, and in accordance with the default terms,
the principal on these notes was increased 50%, with the increase of approximately $413,000 and $490,000 for the years ending
December 31, 2019 and 2018, respectively, being recognized as penalty expenses in the accompanying Statement of Operations.
As
a result of default penalties as discussed above, as well as differences in conversion prices applied by the note holders as compared
to the original terms of the convertible debentures, for the year ending December 31, 2018, the Company recognized a loss on debt
conversion of $176,745.
The
derivative liability arising from all of the above discussed debentures was revalued at each period end and as of December 31,
2019, resulting in an increase of the fair value of the remaining derivative liability of approximately $381,000 for the year
ended December 31, 2019. During the year ended December 31, 2019, there was a reclass of approximately $4,274,000 of the derivative
fair value to equity upon the conversions of approximately $3,143,000 of principal, and a decrease in the fair value of approximately
$608,000 immediately prior to conversion. The key valuation assumptions used as of December 31, 2018 consist, in part, of the
price of the Company’s common stock of $0.20; a risk-free interest rate of 2.63% and expected volatility of the Company’s
common stock ranging from 148.69% to 158.40%, and the various estimated reset exercise prices weighted by probability. The derivative
liability was revalued at December 31, 2018, resulting in an increase of the fair value of the remaining derivative liability
of $24,000 for the year ended December 31, 2018. During the year ended December 31, 2018, there was a reclass of $61,000 of the
derivative fair value to equity upon the conversions of approximately $53,000 of principal, and a decrease in the fair value of
$7,000 immediately prior to conversion. The key valuation assumptions used as of December 31, 2018 consist, in part, of the price
of the Company’s common stock of $0.20; a risk-free interest rate of 2.63% and expected volatility of the Company’s
common stock ranging from 148.69% to 158.40%, and the various estimated reset exercise prices weighted by probability.
As
the conversion features on specified notes have variable conversion prices with no stated floor, the warrants issued with both
the units purchased (Note 9) as well as certain convertible notes, were required to be classified out of equity as liabilities
in October 2018, when the first conversion feature triggered liability classification of the warrants outstanding. The original
fair value recognized for the warrant liability, which includes the warrants issued with convertible debentures issued in October
2018, as disclosed above, totaled $514,000. The key valuation assumptions used as at inception consist, in part, of the price
of the Company’s common stock ranging from $0.27 to $0.20; a risk-free interest rate ranging from 3.04% to 2.28% and expected
volatility of the Company’s common stock ranging from 171.6% to 158.60%.
The
warrant liability was revalued at December 31, 2019, resulting in an increase of the fair value of the warrant liability of $839,000
for the year ended December 31, 2019. The key valuation assumptions used as of December 31, 2019 consist, in part, of the price
of the Company’s common stock of $0.03; a risk-free interest rate ranging from 1.55% to 1.69% and expected volatility of
the Company’s common stock ranging from 182.1% to 297.1%. The warrant liability was revalued at December 31, 2018, resulting
in a decrease of the fair value of the warrant liability of $140,000 for the year ended December 31, 2018. The key valuation assumptions
used as of December 31, 2018 consist, in part, of the price of the Company’s common stock of $0.20; a risk-free interest
rate ranging from 2.45% to 2.63% and expected volatility of the Company’s common stock ranging from 148.7% to 178.2%.
For
the years ended December 31, 2019 and 2018, the Company has recognized approximately $367,000 and $68,000 in interest expense
related to the notes as described above.
Note
8 - Related Party Transactions
On
August 31, 2018, the Company acquired 100% of the outstanding shares of its licensor, PT
Kinerja, which had previously issued the Company, as licensee, the exclusive license of the Company’s IP technology.
(Note 2) At the date of the closing of the acquisition, PT Kinerja had 18 million
shares issued and outstanding, of which 75% or 13.5 million the shares were owned by the CEO of the Company. The consideration
for the acquisition was $1,200,000, to be paid by a promissory note which was issued by the Company to PT Kinerja shareholders,
all related parties. The promissory note (the “Note”) bears interest at the rate of 6% per annum and is due twenty-four
months from the date of the agreement. As part of the acquisition, the Company terminated its Service agreement dated February
20, 2016, with PT Kinerja. In accordance with ASC 805-50-30-5, Transactions Between Entities
Under Common Control, as the Company’s CEO and sole director was in control of both the Company and PT. Kinerja,
the acquisition was accounted for under common control accounting, and therefore the assets acquired and liabilities assumed were
recognized at their historical cost basis. During the year ended December 31, 2019, approximately $304,000 was paid on the promissory
note, resulting in a balance outstanding of approximately $896,000 as of December 31, 2019. Subsequent to year end, on March 17,
2020, the Company paid $664,534 of the promissory note (See Note 12). For the years ending December 31, 2019 and 2018, interest
expense was approximately $68,000 and $24,000, respectively, was recognized, resulting in accrued interest in the amount of approximately
$92,000 and $24,000, for the years ending December 31, 2019 and 2018, respectively.
Payable to related party
consists of the note payable with the Company’s CEO and expenses paid on behalf of the CEO. In addition, during the year
ended December 31, 2018, upon the closing of the acquisition the Company assumed the liability of $119,340 owed by the Company’s
CEO on the building owned/used by PT. Kinerja. Additionally, the Company assumed an officer loan in the amount of $672,810, which
is non-interest bearing and due on demand. The balance as of December 31, 2019 of $700,881 reflects changes in foreign
currency. Subsequent to year end, on March 17, 2020, the Company paid off the payable to related party (See Note 12).
On
May 9, 2017, the Company entered into a $50,000 note payable with their CEO and controlling stockholder. The balance is due on
demand and accrues interest at 8% per annum. For the years ending December 31, 2019 and 2018, interest expense was approximately
$4,000 and $4,000, respectively, was recognized, resulting in accrued interest in the amount of approximately $8,000 and $4,000,
for the years ending December 31, 2019 and 2018, respectively.
Note
9 - Stockholders’ Equity
On
July 26, 2019, the Board of Directors of the Company authorized an increase in the authorized common shares of the Company to
950,000,000.
On
November 25, 2019, the Board of Directors of the Company authorized an increase in the number of authorized shares of common stock
to 2,000,000,000.
Series
A Convertible Preferred Stock
On
January 2, 2018, the Company’s board of
directors authorized the designation of a Convertible Preferred Stock consisting of 400,000 shares with a par value of $0.0001
per share (the “Series A Preferred Stock”). The Series A Preferred Stock has
no voting rights, and shall be entitled to receive such dividends paid to the holders of common shares, on an as-converted basis.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holder of shares of Series
A Preferred Stock will be entitled to be paid out of the assets the Company has legally available for distribution to its shareholders
an amount per Preferred Shares equal to the amount per shares such holder would receive if the Preferred Shares were converted
into common stock immediately prior to the date of such payment.
On
January 2, 2018, the Company issued 400,000 Series A Convertible Preferred Stock to an institutional investor for an aggregate
purchase price of $500,000. The total net proceeds to the Registrant for issuance and sale of the Series A Convertible Preferred
Stock (the “Preferred Stock”) was $445,000 after payment of due diligence and legal fees related to this transaction.
The Series A Convertible Preferred Stock was convertible into 400,000 shares of the Company’s common stock at a conversion
price of $1.25 per share. In addition, on January 2, 2018, the Company issued to the institutional investor Class N Warrants
exercisable to purchase an additional 400,000 shares on a cashless basis, at an exercise price of $1.25 per Share, during
a period of three (3) years from the date of the Agreement. The warrants were valued using the Black-Scholes pricing model to
estimate the fair value of $300,772. The key valuation assumptions used consist, in part, of the price of the Company’s
common stock on the date of issuance of $2.19; a risk-free interest rate of 1.92% and expected volatility of the Company’s
common stock of 185.51%.
On
July 11, 2018, the Company issued to the institutional investor a total of 416,667
shares of common stock, pursuant to a notice of conversion dated July 9, 2018, in connection with the conversion of 200,000 shares
of the Series A Convertible Preferred Stock, at an adjusted conversion price of $0.60, which adjustment was subject to an agreement
between the Company and the institutional investor. As a result of the modification to the
conversion price, the Company recognized a loss on conversion in the amount of $190,255. On January 17, 2019, as
a result of an agreement between the Company and the institutional investor to adjust the conversion price to $0.20, the
Company issued the holder of the Series A Convertible Preferred Stock 833,333 shares of their common stock as a retroactive modification
of the conversion price on the previously conversions. As a result of the additional shares
issued, the Company recognized a loss on conversion in the amount of $708,333.
On
February 22, 2019, the holder of the Series A Convertible Preferred Shares converted an additional 64,000 Series A preferred shares
into a total of 400,000 shares of common stock, at the adjusted conversion price of $0.20. As a result of the modification to
the conversion price, the Company recognized a loss on conversion in the amount of $198,240.
On
April 2, 2019, the holder converted the remaining 136,000 Series A Convertible Preferred Shares into a total of 850,000 shares
of common stock, at an adjusted conversion price of $0.20, which adjustment was subject to an agreement between the Company and
the institutional investor. As a result of the modification to the conversion price, the Company recognized a loss on conversion
in the amount of $428,400.
Series
B Preferred Stock
On
September 30, 2018, the Company’s board of directors authorized the designation of a series B preferred stock consisting
of 500,000 shares with a par value of $0.0001 per share (the “Series B Preferred Stock”).
The
Series B Preferred Stock shall rank senior to the Corporation’s common stock, par value $0.0001 (the “Common Stock”)
but junior to any other class or series of the Corporation’s preferred stock hereafter created.
Except
as otherwise provided herein or by law and in addition to any right to vote as a separate class as provided by law, the holder
of the Series B Preferred Stock shall have full voting rights and powers on all matters subject to a vote by the holders of the
Corporation’s Common Stock and shall be entitled to notice of any shareholders meeting in accordance with the Bylaws of
the Corporation, and shall be entitled to vote, with respect to any question upon which holders of Common Stock having the right
to vote, including, without limitation, the right to vote for the election of directors, voting together with the holders of Common
Stock as one class. For so long as Series B Preferred Stock is issued and outstanding, the holders of Series B Preferred Stock
shall vote together as a single class with the holders of the Corporation’s Common Stock and the holders of any other class
or series of shares entitled to vote with the Common Stock, with the holders of Series B Preferred Stock being entitled to fifty-one
percent (51%) of the total votes on all such matters regardless of the actual number of shares of Series B Preferred Stock then
outstanding, and the holders of Common Stock and any other shares entitled to vote being entitled to their proportional share
of the remaining 49% of the total votes based on their respective voting power.
Unless
otherwise declared from time to time by the Board of Directors, the holders of shares of the outstanding shares of Series B Preferred
Stock shall not be entitled to receive dividends.
The
Series B Preferred Stock were issued on December 17, 2018, with all 500,000 shares issued to the Company’s CEO and Chairman,
Edwin Ng. The Company issued the shares to Mr. Ng for the purpose of assuring that he retains voting control of the Company, in
expectation of the Company’s plan to expand its business and operations, which will require it to issue significant additional
shares. The shares were valued at $871,000, by an independent valuation specialist engaged by the Company, based upon industry
specific control premiums, liquidation rights, and the Company’s market cap at the time of the transaction. The Series B
Preferred Stock fair value was based on the value of the voting rights, which was determined using a securities valuation based
on the equity value of the outstanding shares on a fully diluted basis and a control premium calculated at 11.6%. The $871,000
was recognized as shares issued for services included in general and administrative expenses on the consolidated Statement of
Operations.
Series
C Preferred Stock
On
October 5, 2018, the Company’s board of directors authorized the designation of a 11% Series C Cumulative Redeemable Perpetual
Preferred Stock consisting of 2,000,000 shares with a par value of $0.0001 per share (the “Series C Preferred Stock”).
Dividends on the Series C Preferred Stock are cumulative from the date of original issue and will be payable on the fifteenth
day of each calendar month when, as and if declared by our board of directors. Dividends will be payable out of amounts legally
available therefore at a rate equal to 11% per annum per $25.00 of stated liquidation preference per share, or $2.75 per share
of Series C Preferred Stock per year. The Series C Preferred Stock has no stated maturity and will not be subject to any sinking
fund or mandatory redemption. Shares of the Series C Preferred Stock will remain outstanding indefinitely unless the Company decides
to redeem or otherwise repurchase them. The Company is not required to set aside funds to redeem the Series C Preferred Stock.
Commencing
on a date 36 months from the date of original issue of the Series C Preferred Stock, the Company may redeem, at their option,
the Series C Preferred Stock, in whole or in part, at a cash redemption price of $25.00 per share, plus all accrued and unpaid
dividends to, but not including, the redemption date, upon not less than 30 nor more than 60 days’ written notice (the “Redemption
Notice”) to the holders of the Series C Preferred Stock (the “Holders”). The Series C Preferred Stock may also
be redeemed upon the occurrence of a Change of Control, at the Company’s option, in whole or in part, within 120 days after
the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated
and unpaid dividends to, but not including, the redemption date.
Holders
of the Series C Preferred Stock generally will have no voting rights except for limited voting rights if dividends payable on
the outstanding Series C Preferred Stock are in arrears for eighteen or more consecutive or non-consecutive monthly dividend periods.
The
Series C Preferred Stock has a liquidation preference with the right to receive $25.00 per share, plus any accumulated and unpaid
dividends to, but not including, the date of payment, before any payment is made to the holders of our common stock. The Series
C Preferred Stock will rank, with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, (1) senior to all classes or series of our common stock and to all other equity securities issued by
us other than equity securities referred to in clauses (2) and (3); (2) on a parity with all equity securities issued by us with
terms specifically providing that those equity securities rank on a parity with the Series C Preferred Stock with respect to rights
to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; junior to all equity
securities issued by us with terms specifically providing that those equity securities rank senior to the Series C Preferred Stock
with respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding
up; and (4) effectively junior to all of our existing and future indebtedness (including indebtedness convertible into our common
stock or preferred stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by
others in) our existing subsidiaries and any future subsidiaries.
As
of December 31, 2019, and 2018, there are no shares of the Series C Preferred Stock issued or outstanding.
Series
D Preferred Stock
On
December 11, 2018, the Company’s board of directors authorized the designation of a Convertible Preferred Stock consisting
of 200,000 shares with a par value of $0.0001 per share (the “Series D Preferred Stock”). The Series D Preferred Stock
has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely
unless the holders decide to convert. The Series D Preferred Stock is convertible into a number of shares of the Company’s
common stock equal to a total of 10% percent of the Company’s outstanding shares of common stock as exists on the date of
issuance, on a fully-diluted basis, which includes all shares of common stock underlying convertible debt or other securities
of the Company convertible into shares of the Company’s common stock, including shares underlying the shares of Series D
Preferred Stock (collectively, the “Convertible Securities”). The Series D Preferred Stock includes anti-dilution
protection rights, whereby for a period of 3 years from the date of issuance of the Series D Preferred Stock, and provided that
the holder of Series D Preferred Stock shall hold at least 15,000 shares of Series D Preferred Stock, the holder shall be entitled
to convert of the shares of Series D Preferred Stock into a number of shares of the Company’s fully-diluted common stock
at the date of conversion.
On
January 15, 2019, the 200,000 Series D Preferred Shares were issued to the shareholders of FRS Lending, Inc., a Delaware corporation
(“FRS”) in consideration for the acquisition by the Company of 100% of the capital stock of FRS, which shall operate
on behalf of and provide the Company with services related to the Company’s lending and micro-lending activities and related
lending services in the U.S., Indonesia and internationally, which is a newly developing division that the Corporation is planning
to devote resources to grow its operations. The fair value of the consideration was calculated at $2,372,945, based on 10% of
the fully diluted common shares of the Company as of the date of issuance. FRS did not have any significant tangible assets or
liabilities as of the date of acquisition. The agreement also includes an employment agreement with a three-year term. The consideration
issued in the acquisition has been recognized as consideration related to the employment agreement and will be amortized over
the three-year term of the employment agreement, with the unamortized balance recognized as prepaid expense. The amortization
expense for the year ended December 31, 2019 was approximately $758,000.
The
Series D Preferred Stock was evaluated in accordance with ASC 480, to determine if liability classification was warranted. As
there are no redemption features, and the variable shares to be issued upon conversion are not based on a fixed monetary amount
known at inception, nor is the variation based on something other than the fair value of the Company’s equity shares, the
preferred shares are classified in equity. The embedded conversion feature was analyzed to determine if it was required to be
bifurcated from the preferred shares and accounted for separately, but as the conversion feature is clearly and closely related
to preferred shares, which are an equity host instrument, the conversion feature is not to be bifurcated.
Series
E Preferred Stock
On
December 11, 2018, the Company’s board of directors authorized the designation of a Convertible Preferred Stock consisting
of 200,000 shares with a par value of $0.0001 per share (the “Series E Preferred Stock”). The Series E Preferred Stock
has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely
unless the holders decide to convert. The Series E Preferred Stock is convertible into a number of shares of the Company’s
common stock equal to a total of 15% percent of the Company’s outstanding shares of common stock as exists on the date of
issuance, on a fully-diluted basis, which includes all shares of common stock underlying convertible debt or other securities
of the Company convertible into shares of the Company’s common stock, including shares underlying the shares of Series E
Preferred Stock (collectively, the “Convertible Securities”). The Series E Preferred Stock includes anti-dilution
protection rights, whereby for a period of 3 years from the date of issuance of the Series E Preferred Stock, and provided that
the holder of Series E Preferred Stock shall hold at least 15,000 shares of Series E Preferred Stock, the holder shall be entitled
to convert of the shares of Series E Preferred Stock into a number of shares of the Company’s fully-diluted common stock
at the date of conversion.
On
January 15, 2019, the 200,000 Series E Preferred Shares were issued to Company’s CEO and Chairman, Edwin Ng as compensation
for services related to the negotiation with PT. Investa Wahana Group for the commitment agreement for the subscription of preferred
stock discussed above. The fair value of the compensation was calculated at $3,559,417, based on 15% of the fully diluted common
shares of the Company as of the date of issuance.
The
Series E Preferred Stock was evaluated in accordance with ASC 480, to determine if liability classification was warranted. As
there are no redemption features, and the variable shares to be issued upon conversion are not based on a fixed monetary amount
known at inception, nor is the variation based on something other than the fair value of the Company’s equity shares, the
preferred shares are classified in equity. The embedded conversion feature was analyzed to determine if it was required to be
bifurcated from the preferred shares and accounted for separately, but as the conversion feature is clearly and closely related
to preferred shares, which are an equity host instrument, the conversion feature is not to be bifurcated.
Series
F Preferred Stock
On
January 18, 2019, the Company’s board of
directors authorized the designation of a Convertible Preferred Stock consisting of 100,000 shares with a par value of $0.0001
per share (the “Series F Preferred Stock”). The Series F Preferred Stock have
no voting rights, bear a dividend of 6% per annum, and are convertible into shares of the Company’s Common Stock at an average
of $1.80 per share. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holder
of shares of Series F Preferred Stock will be entitled to be paid out of the assets the Company has legally available for distribution
to its shareholders on the same basis and pari passu with any shares of Preferred Stock, As of December 31, 2019, and the date
of this filing, no shares of Series F Preferred Stock have been issued.
Series
G Preferred Stock
On
January 18, 2019, the Company’s board of directors authorized the designation of a Convertible Preferred Stock consisting
of 100,000 shares with a par value of $0.0001 per share (the “Series G Preferred Stock”). The Series G Preferred Stock
have no voting rights and bear a dividend of 6% per annum, The Company, at its sole option, can request a mandatory conversion
on or after a date six months from the issuance of the Series G Preferred Stock, provided that the shares of the Company’s
common stock, shall be traded at an average closing price of $3.50 or higher during a twenty trading day period and have an average
daily volume during those twenty trading day period of $100,000 dollars or higher, at a conversion price of $1.80, In the event
of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holder of shares of Series F Preferred
Stock will be entitled to be paid out of the assets the Company has legally available for distribution to its shareholders on
the same basis and pari passu with any shares of Preferred Stock, As of December 31, 2019, and the date of this filing, no shares
of Series G Preferred Stock have been issued.
Issuance
of Shares of Common Stock and Warrants for cash
On
March 19, 2019, the Company received $70,000 through a placement of 140,000 common stock units to an investor for an offering
price of $0.50 per unit. Each unit consists of one share of common stock and one warrant to purchase common stock. The 140,000
warrants are exercisable at $1.00 and expire two years from the date of issuance. The warrants were valued at $45,000, using the
Black-Scholes pricing model, with the following assumptions: expected dividend yield of 0%; risk-free interest rate of 2.23%;
expected volatility between 170.2%. Due to the conversion features on specified notes having variable conversion prices with no
stated floor, the warrants were required to be classified out of equity and included in warrant liabilities (Note 6). The common
stock related to the units were not issued upon the unit purchase, and were recognized as stock payable.
During
the second quarter of 2019, the Company received $76,374 for the sale of an additional 59,000 shares of common stock. The common
stock was not issued upon purchase, and was recognized as stock payable.
On
November 7, 2019, effective as of May 7, 2019, the Company issued the 199,000 shares of common stock that had been recognized
in Stock Payable as of September 30, 2019.
Issuance
of Shares of Common Stock for Services
On
January 10, 2019, the Company issued a total of 3,200,000 restricted shares to various third parties for consulting services valued
at $883,200 based upon the market price of the shares of $0.28 on the date of issuance. The fair value of the shares was recognized
in Prepaid assets at issuance and as the consulting agreements were for a term ending December 31, 2019, the expense was recognized
over the term of the agreement.
On
January 15, 2019, the Company issued 250,000 restricted shares to a third party for consulting services already provided, valued
at $155,000 based upon the market price of the shares of $0.62 on the date of issuance.
On
March 10, 2019, the Company entered into a consulting agreement to issue 400,000 restricted shares to a third party for consulting
services to be provided over the year term of the consulting agreement, valued at $200,000 based upon the market price of the
shares of $0.50 on the date of the agreement. The fair value of the shares was recognized in Prepaid assets and the expense will
be recognized over the term of the agreement.
On
April 2, 2019, the Company issued a total of 300,000 restricted shares to a third party for consulting services already provided,
valued at $180,000 based upon the market price of the shares of $0.60 on the date of issuance.
On
May 23, 2019, the Company issued 150,000 fully vested common shares to a third party for consulting services for a 12 month term,
in accordance with the terms of a consulting agreement dated April 17, 2019. The shares were valued at $63,000 based upon the
market price of the shares of $0.42 on the date of issuance, and will be amortized over the life of the agreement. An additional
100,000 shares were issued on June 7, 2019, valued at $24,000, based upon the market price of the shares of $0.24 on the date
of issuance. An additional 200,000 shares were issued on August 19, 2019, valued at $34,000, based upon the market price of the
shares of $0.17 on the date of issuance. The additional shares issued are being amortized over the remaining term of the agreement.
On
June 6, 2019, the Company entered into a consulting agreement to issue 500,000 restricted shares to two parties, for consulting
services to be provided over the year term of the consulting agreement, valued at $115,000 based upon the market price of the
shares of $0.23 on the date of the agreement. The fair value of the shares was recognized in Prepaid assets and the expense will
be recognized over the term of the agreement.
On
July 2, 2019, the Company issued 450,000 shares to consultants for services, with a fair value of $211,500, based on the fair
value of the Company’s common stock on the date of the consulting agreements.
On
October 1, 2019, the Company entered into consulting agreements to issue 300,000 restricted shares each to two parties for a total
of 600,000 restricted shares, for consulting services to be provided over the fifteen month term of the consulting agreements,
valued at $66,000 based upon the market price of the shares of $0.11 on the date of the agreement. The fair value of the shares
will be recognized in Prepaid assets and the expense will be recognized over the term of the agreement.
On
October 2, 2019, the Company issued an additional 800,000 restricted shares to a third party for consulting services already provided
pursuant to a consulting agreement dated November 14, 2017, valued at $88,000 based upon the market price of the shares of $0.11
on the date of issuance.
On
October 15, 2019, the Company issued an additional 1,750,000 restricted shares to three separate third parties for consulting
services under amendments to previously issued consulting agreements, valued at $157,500 based upon the market price of the shares
of $0.09 on the date of issuance.
On
December 19, 2018, the Company issued 1,990,000 restricted shares to various investors to replace previously issued shares that
the investors had purchased. The investors’ shares had been misappropriated by a brokerage agent, and the Company made a
decision to take responsibility and therefore reissue the lost shares. The shares were valued at $272,630, based on the market
value of the common stock on the date of issuance, which was recognized as a financing charge on the consolidated statement of
operations.
On
October 8, 2018, the Company issued 37,500 restricted shares to Mr. Stephen Kann as partial consideration for services to be rendered
by Mr. Kann pursuant to his engagement to provide investor relation services to the Company. The services were valued at $10,313,
based on the market value of the common stock on the date of issuance.
During
the three months ended June 30, 2018, the Company issued 614,734 shares to various third parties in consideration for services,
valued at $654,981, using the market value of the common stock on the date of issuance.
On
March 12, 2018, the Company issued 80,000 restricted shares owing to a third party
for services under an agreement entered into in July 31, 2017 (see Note 4).
On
February 18, 2018, the Company issued a total of 218,044 restricted shares to a third
party in consideration for services valued at $276,916 based upon the price of the shares on the date of issuance.
On
February 9, 2018, the Company issued a total of 200,000 restricted shares to two parties in consideration for services valued
at$220,000 based upon the price of the shares on the date of issuance.
On
January 23 and February 14, 2018, the Company issued a total of 200,000 restricted shares to third parties for services valued
at $278,500 based upon the price of the shares on the respective dates of issuance.
Based
on agreement with Bear Creek Capital on January 29, 2018, the Company issued 25,000 restricted
shares and was to issue an additional 25,000 shares 120 days from the agreement, provided the Company was still using the
service of the party. Consequently, the Company recorded the stock payable amounting
to $34,000 to the party, as the shares were not issued prior to December 31, 2018.
On
January 11, 2018, the Company entered into an advisory agreement with Blockchain
Industries, Inc., a public Nevada corporation and Fintech Financial Consultants, Inc., a Nevada corporation. In connection with
the advisory agreement, the Company agreed to issue 1,000,000 shares, with a fair value of $1,800,000 recognized as consulting
expenses, based upon the price of the shares on the date of issuance.
For
the years ended December 31, 2019 and 2018, approximately $2,979,000 and $2,088,000 was recognized as consulting expense for the
above issued shares.
Treasury
stock
During the year
ended December 31, 2019, the Company bought back 616,000 shares of their common stock for $86,340, which will be recognized
in Treasury stock until such time as the Company resells or retires the shares.
Warrants
See
Note 7 for disclosure of warrants issued or exercised in connection with new convertible debentures entered into during the years
ended December 31, 2019 and 2018.
On
January 2, 2018, the Company received $100,000 as a result of the exercise by an institutional investor of 100,000 Class C Warrants
that had been originally issued as part of a unit purchase transaction in April 2017. The Class C Warrants were exercisable for
a period of 12 months to purchase 100,000 shares of common stock at an exercise price of $1.00 per share.
Warrants
outstanding as of December 31, 2019 are as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2018
|
|
|
3,754,714
|
|
|
$
|
1.65
|
|
|
|
2.3
|
|
Granted in 2018
|
|
|
1,537,500
|
|
|
$
|
0.52
|
|
|
|
4.2
|
|
Exercised in 2018
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
Expired in 2018
|
|
|
(914,000
|
)
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
|
|
4,278,214
|
|
|
$
|
1.28
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted in 2019
|
|
|
6,439,277
|
|
|
$
|
0.17
|
|
|
|
4.9
|
|
Exercised in 2019
|
|
|
(940,500
|
)
|
|
$
|
0.30
|
|
|
|
4.1
|
|
Expired in 2019
|
|
|
(1,325,000
|
|
|
$
|
1.00
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
8,451,991
|
|
|
$
|
0.57
|
|
|
|
4.0
|
|
Note
10 - Income Taxes
The
Company follows the guidelines of ASC 740, which
provides for the recognition of a deferred tax asset based upon the value the loss carry-forwards will have to reduce future income
taxes and management’s estimate of the probability of the realization of these tax benefits. The Company’s net operating
loss carryovers incurred prior to 2008 considered available to reduce future income taxes were reduced or eliminated through the
Company’s recent change of control (I.R.C. Section 382(a)) and the continuity of business limitation of I.R.C. Section 382(c).
The
Company has a current operating loss carry-forward
of approximately $13,283,000. Management has
determined it more likely than not that these timing differences will not materialize and have provided a valuation allowance
against substantially all of the net deferred tax asset.
Future
utilization of currently generated federal and state NOL and tax credit carry forwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state
provisions. The annual limitation may result in the expiration of NOL and tax credit carry forwards before full utilization.
The
components of income tax expense for the years ended December 31, 2018 and 2017 consist of the following:
|
|
2019
|
|
|
2018
|
|
Federal Tax statutory rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Permanent differences
|
|
|
20.35
|
%
|
|
|
6.79
|
%
|
Valuation allowance
|
|
|
(41.35
|
)%
|
|
|
(27.79
|
)%
|
Effective rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Significant
components of the Company’s deferred tax assets as of December 31, 2019 and 2018 are summarized below.
Individual
components giving rise to the deferred tax assets are as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax benefit
|
|
$
|
1,584,000
|
|
|
$
|
1,058,000
|
|
Net operating loss carryover
|
|
|
2,789,000
|
|
|
|
1,038,000
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
4,373,000
|
|
|
|
2,096,000
|
|
Less valuation allowance
|
|
|
(4,373,000
|
)
|
|
|
(2,096,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company’s net deferred tax asset and valuation allowance increased by approximately $2,278,000 for the year end December
31, 2019 from the year ended December 31, 2018.
The
Company is not under examination by any jurisdiction for any tax year. Their federal and state income tax returns are open for
fiscal years ending on or after December 31, 2014. At December 31, 2019, the Company had no material unrecognized tax benefits
and no adjustments to liabilities or operations were required under FASB ASC 740-10.
Note
11 - Commitments and Contingencies
On
November 2, 2018, the Company filed a registration statement on Form S-1 for the purpose of offering a total of up to 300,000
shares of its 11% Series C Cumulative Redeemable Perpetual Preferred Stock (“Series C Preferred Stock”), at an Offering
price of $25 per share. If the Offering is successful, of which there can be no assurance, the gross proceeds will be $7.5 million.
The Company’s intention is to have these shares of Series C Preferred Stock subject to quotation on the OTCQB. Due to the
termination of the PTMDU acquisition, on October 30, 2019, the Company withdrew its registration statement.
The
Company accrues for loss contingencies arising
from claims, litigation and other sources when it is probable that a liability has been incurred and the amount can be reasonably
estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. Legal costs
incurred in connection with loss contingencies are expensed as incurred.
The
Company has no current legal proceeding and did not accrue any loss for contingencies as of December 31, 2019 and 2018.
Note
12 - Subsequent Events
On
February 4, 2020, the Board of Directors authorized an increase in the number of authorized shares of common stock from 2,000,000,000
to 3,000,000,000.
On
March 24, 2020, the Board of Directors authorized an increase in the number of authorized shares of common stock to 5,000,000,000.
On
April 8, 2020, the Board of Directors authorized an increase in the number of authorized shares of common stock to 15,000,000,000.
On
March 18, 2020, the Company’s board of directors authorized the designation of a Convertible Preferred Stock consisting
of 100,000 shares with a par value of $0.0001 per share (the “Series L Preferred Stock”). The Series L Preferred Stock
has no stated maturity and will not be subject to any sinking fund or mandatory redemption and will remain outstanding indefinitely
unless the holders decide to convert. Holders of the Series L Preferred Stock will have no voting rights. The Series L Preferred
Stock shall participate with the common stock, on an as converted basis, in any dividends declared by the Company. The Series
L Preferred shall not participate in the dividends to be payable on any new series of preferred stock. The Series L
Preferred Stock is convertible into the Company’s common stock at a conversion price of $0.10 per share. The Company shall
reserve out of its authorized and unissued common stock as long as any of the Series L Preferred Stock are outstanding a number
of common shares equal to 100% of the conversion rate with respect to the conversion amount of all remaining outstanding shares
of Series L Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Company, the holder of shares of Series F Preferred Stock will be entitled to be paid out of the assets the
Company has legally available for distribution to its shareholders on the same basis and pari passu with any shares of Preferred
Stock,
On
March 18, 2020, the 100,000 Series L Preferred Shares were issued to Company’s CEO and Chairman, Edwin Ng at $10.00 per
share, for a purchase price of $1,000,000. $664,534 of this amount was used to pay down the Promissory note, related party, leaving
a balance of $231,706 still due on the note.
On
December 10, 2018, the Company entered into a signed commitment with PT. Investa Wahana Group, Indonesia to invest $200 million,
subscribing for $100 million in shares of the Company’s Series F Convertible Preferred Stock and an addition $100 million
in shares of the Company’s Series G Convertible Preferred Stock. To
date, the Company has not received the subscription proceeds but the Company understands that the Wahana Group is still pursuing
its efforts to monetize their subscription agreements utilizing collateral to support letters of credit. There can be no assurance
that the Wahana Group will be successful or when, if ever, the Company will receive subscription proceeds from Wahana Group under
the Series F Preferred Stock Subscription Agreement.
KinerjaPay’s
intended use of proceeds from the Wahana Group Subscription Agreement are to fund the Company’s peer-to-peer lending operations,
potential acquisitions and strategic investments in the Company’s home-based region as part of their expansion plan for
2020. The Company also plans to allocate a certain portion of the subscription proceeds, if and when received, to repurchase KinerjaPay’s
stock in the open market, subject to the rules and regulations of the SEC.
January
21, 2020 note
On
January 21, 2020, the Company entered into a 12% convertible promissory note in the principal amount of $86,625 with an accredited
investor, which matures on January 21, 2021. The note has an OID of $7,875, for a purchase price of $78,750. The note bears interest
at 10%, which increases to 18% upon an event of default. If the note is not paid at maturity, the outstanding principal shall
increase by 10%. If the Company loses their bid price, the outstanding principal shall increase by 20%, and if the Company is
delisted or the trading of the common stock is suspended for more than ten consecutive days or the Company ceases to file 1934
Act reports with the SEC, the outstanding principal shall increase by 50%. The outstanding amount due under the note as of May
29, 2020, is in default as of the date of this filing as the Company is delinquent in its periodic reporting under the Securities
Act of 1934. The note is convertible commencing six months after issuance of the note (or upon an event of Default) at a conversion
price which shall equal the lesser of: (i) $0.25; and (ii) 60% multiplied by the lowest closing bid price during the 20 days prior
to the conversion. The discount will be increased by 10% if the Company’s experiences a DTC “chill”. Additionally,
if the Company is not current in their filings with the SEC, and does not cure the delinquency within 10 days, the base price
of the conversion price shall change to the lowest closing bid price during the delinquency period. Per the agreement, the Company
is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion
of the note. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 120% to 140% of the principal and accrued interest balance, based on the redemption date’s passage of time
from the date of issuance of the debenture. The conversion feature does not meet the definition of a derivative during the first
180 days but will meet the definition of a derivative when the conversion price becomes variable and would at that time require
bifurcation and to be accounted for as a derivative liability.
January
24, 2019 note
On
January 24, 2020, the Company entered into a convertible note with an accredited investor. for the principal amount of $75,000,
convertible into shares of common stock of the Company, which matures on January 24, 2020. The convertible note had an OID of
$3,000, for a purchase price of $72,000. The note bears interest at 12%, which increases to 18% upon an event of default. The
note is convertible commencing 180 days after issuance of the note (or upon an event of Default), with a variable conversion rate
at a 40% discount to the lowest closing price during the previous twenty days to the conversion date. The conversion rate adjusts
if there are common stock equivalents issued and in which the aggregate per share price is below the original conversion price,
in which case the adjusted conversion price is the lower of the original conversion price or 25% of the aggregate price. The discount
increases to a 55% discount if there is a DTC “chill” in effect and an additional 5% if the Company is not DWAC or
DTC eligible, as well as an additional 5% discount for each event of default. The debenture also includes various liquidated damages
for various events, as set forth in the agreement, such as the Company’s inability or delay in the timely issuance of the
shares upon receipt of a conversion request. In an event of default, as defined in the note, the “default amount”
shall be calculated at the product of (A) the then outstanding principal amount of the note, plus accrued interest, divided by
(B) the conversion price as determined on the issuance date, multiplied by (C)the highest price at which the common stock traded
at any time between the issuance date and the date of the event of default. The outstanding amount due under the note as of May
29, 2020, is in default as of the date of this filing as the Company is delinquent in its periodic reporting under the Securities
Act of 1934. Per the agreement, the Company is required at all times to have authorized and reserved eight times the number of
shares that is actually issuable upon full conversion of the note. During the first 180 days the convertible redeemable note is
in effect, the Company may redeem the note at amounts ranging from 135% to 145% of the principal and accrued interest balance,
based on the redemption date’s passage of time from the date of issuance of the debenture, and at 150% after 180 days. The
conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative
liability on the date the note becomes convertible, either 180 days after issuance or upon an event of default.
January
30, 2020 note
On
January 30, 2020, the Company entered into a 12% convertible note with an accredited investor for the principal amount
of $167,750, convertible into shares of common stock of the Company, which matures on January 20,2021. In the event of default,
the outstanding principal balance increases to 150%, and if the Company fails to maintain the required authorized share reserve,
the outstanding principal increases to 200%. If certain events of default, relating to the reporting requirements or listing of
the Company’s common stock, occur or continue after six months from the date of issuance of the note, the principal increases
by $15,000. The outstanding amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company
is delinquent in its periodic reporting under the Securities Act of 1934. The note is convertible into shares of Common Stock
at a conversion price the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to
the date of the note or (ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau
OTC market on which the Company’s shares are traded, for the 20 prior trading days including the day upon which a notice
of conversion is received by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common
shares are not DWAC deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails
to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time
after the issue date, the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall
be redefined to mean 40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities
at a price lower than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there
are liquidation damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times
to have authorized and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If
the Company does not maintain or replenish the reserve amount within three days of request by the holder, the principal amount
of the note shall increase by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may
redeem the note at amounts ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s
passage of time from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires
bifurcation and will be accounted for as a derivative liability.
In
connection with the note, the Company issued 5,242,187 warrants, exercisable at $0.04, with a five year term.
February
10, 2020 note
On
February 10, 2020, the Company executed a 10% convertible promissory note payable to an accredited investor in the principal amount
of $350,000, with an OID of $35,000. The first tranche of the note, in the principal amount of $30,000, with an OID of $3,000
for net cash receipt of $27,000, was paid at closing. The accredited investor may pay, in its sole discretion, such additional
amounts of the consideration and at such dates as the holder may choose in its sole discretion. Each tranche shall be due twelve
months after payment. In an event of default as set forth in the note, the interest rate increases to a default amount of 15%,
and the default sum due becomes 150% of the principal outstanding and accrued interest. The note is convertible at a variable
conversion rate of 65% of the lowest closing price during 20 days prior to the conversion date. If at any time while the note
is outstanding, the conversion price is equal to or lower than $0.50, then an additional fifteen percent (15%) discount shall
be factored into the conversion price. The discount will also be increased by 10% if the Company’s common shares are not
DTC deliverable. Additionally, if the Company fails to comply with the reporting requirements of the Exchange Act (including but
not limited to becoming late or delinquent in its filings, even if the Company subsequently cures such delinquency), the discount
shall be increased an additional 15%. Per the agreement, the Company is required at all times to have authorized and reserved
ten times the number of shares that is actually issuable upon full conversion of the note. The conversion feature met the definition
of a derivative and required bifurcation and to be accounted for as a derivative liability
April
9, 2020 note
On
April 9, 2020, the Company entered into a 12% convertible note with an accredited investor for the principal amount of
$150,000, convertible into shares of common stock of the Company, which matures on April 9,2021. In an event of default as set
forth in the note, the interest rate increases to a default amount of 24%. In the event of default, the outstanding principal
balance increases to 150%, and if the Company fails to maintain the required authorized share reserve, the outstanding principal
increases to 200%. If certain events of default, relating to the reporting requirements or listing of the Company’s common
stock, occur or continue after six months from the date of issuance of the note, the principal increases by $15,000. The outstanding
amount due under the note as of May 29, 2020, is in default as of the date of this filing as the Company is delinquent in its
periodic reporting under the Securities Act of 1934. The note is convertible into shares of Common Stock at a conversion price
the lower of (i) the lowest closing price (as defined) during the previous twenty trading days prior to the date of the note or
(ii) 60% of the lowest trading price of the Common Stock as reported on the National Quotations Bureau OTC market on which the
Company’s shares are traded, for the 20 prior trading days including the day upon which a notice of conversion is received
by the Company or its transfer agent. The discount will be increased by 10% if the Company’s common shares are not DWAC
deliverable, and increased by 15% if there is a DTC “chill”. Furthermore, if the Company fails to maintain its status
as “DTC Eligible” for any reason, or, if the conversion price is less than $0.01 at any time after the issue date,
the principal amount of the note shall increase by $15,000. In addition, the variable conversion price shall be redefined to mean
40% multiplied by the market price. The conversion price shall be adjusted upon subsequent sales of securities at a price lower
than the original conversion price. If the Company enters into a 3(a)(9) or 3(a)(10) issuance of shares there are liquidation
damages of 25% of principal, not to be below $15,000. Per the agreement, the Company is required at all times to have authorized
and reserved ten times the number of shares that is actually issuable upon full conversion of the note. If the Company does not
maintain or replenish the reserve amount within three days of request by the holder, the principal amount of the note shall increase
by $5,000. During the first 180 days the convertible redeemable note is in effect, the Company may redeem the note at amounts
ranging from 135% to 150% of the principal and accrued interest balance, based on the redemption date’s passage of time
from the date of issuance of the debenture. The conversion feature meets the definition of a derivative and requires bifurcation
and will be accounted for as a derivative liability.
In
connection with the note, the Company issued 53,571,428 warrants, exercisable at $0.0014, with a five year term.
On
March 9, 2020, the Company sold their building, which was obtained as part of the PT Kinera acquisition, for $803,571 (Rp.11,250,000).
As of December 31, 2019, the building had a carrying value of $764,093, which will result in a gain on sale of building of around
$40,478, when the carrying value of the building as of the date of the sale is determined. The cash proceeds were used to pay
off the Payable to Related Party.
The
outstanding amounts due under various convertible debentures as of May 29, 2020, are in default as of the date of this filing
as the Company is delinquent in its periodic reporting under the Securities Act of 1934. (Note 7)
Subsequent
to year end, the Company converted approximately $1,616,000 of principal on their convertible debentures and approximately $92,000
of accrued interest and fees into 1,444,977,456 shares of common stock.
Subsequent
to year end, the Company issued a total of 12,380,220 shares of their common stock to various consultants for services. These
shares were valued using the share price on the date of the grant of $0.02, resulting in an expense of approximately $194,000.