Convertible Debt

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Convertible Debt

Note 8 – Convertible Debt

2018 Convertible Notes

On May 8, 2018, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with L2 Capital, LLC (“L2”) pursuant to which the Company issued and sold a promissory note to the Investor in the aggregate principal amount of up to $565,555 (the “Note”), which is convertible into shares of common stock of the Company, subject to the terms, conditions and limitations set forth in the Note. The Note accrues interest at a rate of 9% per annum. The aggregate principal amount of up to $565,555 consists of a prorated original issuance discount of up to $55,555 and a $10,000 credit to L2 for transactional expenses with net consideration to the Company of up to $500,000 which will be funded in tranches. The maturity date of each tranche funded shall be six (6) months from the effective date of each payment and is the date upon which the principal sum, as well as any accrued and unpaid interest and other fees for each tranche, shall be due and payable. L2 has the right at any time to convert all or any part of the funded portion of the Note into fully paid and non-assessable shares of common stock of the Company at the Conversion Price, which is equal to 58% multiplied by the lowest VWAP during the twenty-five (25) Trading Day period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete Trading Day prior to the Conversion Date or (ii) the Conversion Date (subject to adjustment as provided in the Note), subject to the occurrence of any Event of Default (as defined therein) under the Note. In connection with the funding of the initial tranche $100,000 on May 23, 2018, the Company recorded $121,111 of the Note and also issued a common stock purchase warrant to L2 to purchase up to 34,842 shares of the Company’s common stock pursuant to the terms therein (the “L2 Warrant”) as a commitment fee. The Company recorded an initial derivative liability and derivative expense of $108,569 for the issuance of the warrant. The Company recorded a debt discount of $121,111 and during the year ended December 31, 2018, recorded the full amortization expense of $121,111. At the time that each subsequent tranche under the Note is funded by L2 in cash, then on such funding date, the warrant shares shall immediately and automatically be increased by the quotient of 100% of the face value of the respective tranche and 110% of the VWAP of the common stock on the Trading Day immediately prior to the funding date of the respective tranche. The L2 Warrant is exercisable for a period of five (5) years from date of issuance. The L2 Warrant includes a cashless net exercise provision whereby L2 can elect to receive shares equal to the value of the L2 Warrant minus the fair market value of shares being surrendered to pay for the exercise. Since the date of the initial funding L2 has funded $350,000 of additional tranches and the Company increased the Note by $388,885. The Company recorded an initial derivative liability on the additional tranches funded of $482,086, a debt discount of $393,885 and an initial derivative expense of $88,201. On January 11, 2019, the Company received the final funding of $50,000 from the May 8, 2018, note of L2 and the Company increased the Note by $55,559. For this funding the Company recorded a derivative liability of $85,849, a debt discount of $55,559 and an initial derivative expense of $30,290. During the three months ended March 31, 2019, the Company recorded amortization expense of $215,586 on the Note, and their remains $98,878 of unamortized note discounts. The principal and interest balance of the Note as of March 31, 2019 and December 31, 2018, $595,263 was $524,565.

On July 5, 2018, as part of the Company’s debt consolidation plan, the Company accepted and agreed to a Note Purchase Agreement (the “NPA”), whereby, St George Investments, LLC (“St’ George”) assigned $174,374.72 of principal and interest of their St George 2016 Note (See above) and $927,323.67 of principal and interest on their St George 2017 Note (see above) to L2. The Company issued a 10% Replacement Promissory Note (the “RPN”) to L2 for $1,101,698. The RPN matured on January 1, 2019, is now subject to default interest rate of 18% per annum and is convertible into shares of the Company’s common stock at any time at the discretion of L2 at a conversion price equal to the lowest trading price during the twenty-five (25) trading days immediately prior to the conversion date multiplied by fifty eight percent (58%), representing a forty two percent (42%) discount. During the three months ended March 31, 2018, L2 converted $245,746 of the RPN into 910,000 shares of common stock at an average conversion price of $0.2701 per share. As of March 31, 2019, and December 31, 2018, the remining principal and interest balance of the RPN is $290,057 and $521,133.

The Company determined that the conversion feature of the 2017 and 2018 Convertible Notes represent an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the 2017 Convertible Notes were not considered to be conventional debt under ASC 815-40 (formerly EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock) and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet.

2019 Convertible Notes

On February 7, 2019, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with L2, pursuant to which the Company issued and sold a promissory note in the aggregate principal amount of up to $565,555 (the “Feb 2019 Note”), which is convertible into shares of common stock of the Company, subject to the terms, conditions and limitations set forth in the Note. The Note accrues interest at a rate of 9% per annum. The aggregate principal amount of up to $565,555 consists of a prorated original issuance discount of up to $55,555 and a $10,000 credit to L2 for transactional expenses with net consideration to the Company of up to $500,000 which will be funded in tranches. The maturity date of each tranche funded shall be six (6) months from the effective date of each payment and is the date upon which the principal sum, as well as any accrued and unpaid interest and other fees for each tranche, shall be due and payable. L2 has the right at any time to convert all or any part of the funded portion of the Note into fully paid and non-assessable shares of common stock of the Company at the Conversion Price, which is equal to 58% multiplied by the lowest VWAP during the twenty-five (25) Trading Day period ending, in Holder’s sole discretion on each conversion, on either (i) the last complete Trading Day prior to the Conversion Date or (ii) the Conversion Date (subject to adjustment as provided in the Note), subject to the occurrence of any Event of Default (as defined therein) under the Note. In connection with the funding of the initial tranche $50,000 on February 8, 2019, the Company recorded $65,555 of the Note, and also issued a common stock purchase warrant to L2 to purchase up to 70,948 shares of the Company’s common stock pursuant to the terms therein (the “L2 Warrant”) as a commitment fee. The Company recorded an initial derivative liability and derivative expense of $78,029 for the issuance of the warrant. L2 funded an additional $115,000 during the three months ended March 31, 2019, and the Company increased the loan balance by $127,777. The Company recorded an initial derivative liability on the tranches funded of the Feb 2019 Note of $325,398, a debt discount of $193,332 and an initial derivative expense of $132,00. During the three months ended March 31, 2019, the Company recorded amortization expense of $41,611 on the Feb 2019 Note findings and their remains $151,721 of unamortized note discounts. As of March 31, 2019, the remining principal and interest balance of the FEB 2019 Note is $195,204.

Convertible Note Conversions   

During the three months ended March 31, 2019, the Company issued the following shares of common stock upon the conversions of portions of the Convertible Notes:

Date		Principal Conversion		Interest Conversion		Total Conversion		Conversion Price		Shares Issued		Issued to
	1/4/2019	$	22,678	$	—	$	22,678	$	0.20		115,000	L2
	1/14/2019	$	21,692	$	—	$	21,692	$	0.20		110,000	L2
	1/31/2019	$	33,176	$	—	$	33,176	$	0.30		110,000	L2
	2/11/2019	$	37,700	$	—	$	37,700	$	0.30		125,000	L2
	3/4/2019	$	37,700	$	—	$	37,700	$	0.30		125,000	L2
	3/14/2019	$	46,400	$	—	$	46,400	$	0.37		125,000	L2
	3/28/2019	$	46,400	$	—	$	46,400	$	0.23		200,000	L2
		$	245,746	$	—	$	245,746				910,000

A summary of the convertible notes payable balance as of March 31, 2019, and December 31, 2018, is as follows:

	March 31, 2019			December 31, 2018
Beginning Principal Balance	$	935,008			979,443
Convertible notes-newly issued		248,891			1,034,186
Conversion of convertible notes (principal)		(245,746	)		(985,996	)
Accrued interest added to convertible notes		—			78,574
Principal payments		—			(171,199	)
Unamortized discount		(250,595	)		(217,293	)
Ending Principal Balance, net	$	687,558			717,715

The Company recorded a loss on debt settlement of $229,555 and $58,759 on the redemption of convertible notes for the three months ended March 31, 2019 and 2018, respectively.