CONVERTIBLE NOTES PAYABLE

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Note 6 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable consist of the following:

		As of
		June 30,			December 31,
		2019			2018
Various Convertible Notes	(a)	$	43,500		$	45,000
Ylimit, LLCC convertible Notes	(b)		707,500			707,500
Golock Capital, LLC Convertible Notes	(c)		306,678			302,067
Other Convertible Notes	(d)		345,160			426,964
Total Convertible Notes			1,402,838			1,484,531
Discount			(78,512	)		(249,241	)
Convertible notes, net		$	1,324,326		$	1,232,290

_____________ 

(a)

In August 2014 the Company issued a series of convertible notes with various interest rates ranging up to 10% per annum. The Note Conversion Price is determined as follows: (a) if the Note is converted upon the Next Equity Financing, an amount equal to 80% of the price paid per share paid by the investors in the Next Equity Financing; (b) if the Note is converted in the event of a Corporate Transaction, a price per share derived by dividing a “pre-money” valuation of $8,000,000 by the number of shares outstanding immediately prior to the time of such conversion, on a fully diluted basis; or (c) if the Note is converted as part of a Maturity Conversion, a price per unit derived by dividing a “pre-money” valuation of $8,000,000 by the total number of units (restricted and non-restricted) outstanding immediately prior to the time of such conversion, on a fully diluted basis. The notes are due and payable on demand at any time after the earlier of (i) 36 months following the note issuance or (ii) the consummation of a corporate transaction if not previously converted. The balance of the notes outstanding was $45,000 as of December 31, 2018. On March 4, 2019, a note holder elected to forgive and cancel their outstanding convertible note balance of $1,500, which the Company recorded as a gain on extinguishment of debt in the accompanying condensed consolidated statement of operations. The balance of the notes outstanding was $43,500 as of June 30, 2019, of which $28,500 was due to related parties.

(b)

On December 31, 2018, the aggregate convertible principal note balance to YLimit, LLC was $705,500 and the related debt discount was $70,078. The convertible notes have an interest rate of 10% per annum, a maturity date of May 9, 2019, and convertible into shares of common stock at 85% of the per-share stock price in the equity funding, but in no event shall the conversion price be less than $0.035 per share. The maturity date of the notes has been extended to November 9, 2019. At June 30, 2019, the balance of notes outstanding was $707,500.

(c)

At December 31, 2018, the aggregate convertible notes balance to Golock Capital, LLC (“Lender”) was $302,067. The convertible notes have an interest rate of 10% per annum and maturity dates ranging from June 1, 2018 to November 1, 2018, and were convertible into shares of common stock of the Company at the lower of (i) $0.015 per share or, (ii) 58% of the lowest closing bid price in the 20 trading days prior to the day that the Lender requests conversion. On April 29, 2019, Golock entered into an amendment with the Company to extend the maturity of the Notes until July 31, 2019. In return, Golock received several concessions. They received (a) a warrant to purchase 12,833,333 shares of the Company’s common stock for a period of 48 months exercisable at a strike price of $.00475. The Company recorded a financing charge of $28,227 related to these warrants and (b) the conversion noted above was changed from 58% to 50% of the lowest closing bid price in the 20 trading days prior to that day that the Lender request conversion. The balance of the notes outstanding at June 30, 2019, was $306,678.

(d)

At December 31, 2018, the aggregate convertible notes balance to five lenders was $426,964 and the related debt discount was $179,162. The convertible notes have interest rates ranging from 8% to 12% per annum, maturity dates ranging from August 21, 2018, to June 19, 2020, and are convertible into shares of common stock of the Company at discount rates between 38% and 50% of the lowest trading price for the Company’s common stock during the prior twenty (20) trading day period, and for one lender, no lower than $0.035 per share. During the six months ended June 30, 2019, the Company entered into additional notes of $173,000, interest rates from 10% to 12%, and maturity dates ranging from January 22, 2020, to June 19, 2020, at conversion terms comparable to the terms above. Convertible notes and accrued interest aggregating $293,525 were converted into 256,004,550 common shares and recognized loss on settlement of debt of $ 402,875 during the six months ended June 30, 2019. At June 30, 2019, the aggregate balance of the notes outstanding was $345,160 and the related debt discount was $78,512.

The Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were either subject to an adjustment based on the occurrence of future offerings or events or the conversion price was variable. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was recorded as debt discount offsetting the fair value of the Notes and the remainder recorded as financing costs in the Consolidated Statement of Operations. The discount is being amortized using the effective interest rate method over the life of the debt instruments.

The balance of the unamortized note discount at June 30, 2019, and December 31, 2018, respectively, was $78,512 and $249,241. During the six months ended June 30, 2019, the Company issued $173,000 of convertible notes whose conversion features created a derivative liability upon issuance with a fair value of $152,065, of which $82,306 was recorded as a valuation discount, and the remaining $69,759 was recorded as a financing cost. During the six months ended June 30, 2019, amortization of debt discount was $170,728 which is included in financing costs on the Company’s statement of operations.

For the purposes of the Balance Sheet presentation, convertible notes payable have been presented as follows:

	June 30, 2019		December 31, 2018
Convertible notes payable, net	$	1,295,826	$	1,202,290
Convertible notes payable, related party, net		28,500		30,000
Total	$	1,324,326	$	1,232,290