Debt

6 Months Ended

Jun. 30, 2022

Debt

Debt

Note 6 – Debt

Our debt in certain categories went from $3,259,604 at December 31, 2021 to $3,403,308 at June 30, 2022 as follows:

	06/30/22		12/31/21
Loans from related parties	$	102,713	$	103,640
Convertible notes payable, related party		70,392		70,392
Short-term convertible notes payable, net		1,543,923		1,637,812
Convertible notes payable in default		341,000		32,000
Short-term notes payable, net		64,174		15,989
Derivative liability		803,874		1,384,775
Long-term convertible notes payable, net		49,029		-
Long-term convertible notes payable, related party		26,746		14,996
Totals	$	3,001,851	$	3,259,604

Loans from related parties

At June 30, 2022 we owed $102,713 in related-party loans consisting of $97,713 to Michael Nugent and $5,000 owed to a related-party Board member .

Short-Term Convertible Notes Payable – Related Party

At June 30, 2022, we owed $70,392 in convertible notes payable consisting of $419 to Dr. Jon Leonard, our Chief Executive Officer and $69,973 to David LaMountain, our Chief Operating Officer.

Short-Term Convertible Notes Payable – Third-Party, Net

Unpaid principal on short-term convertible notes payable at June 30, 2022 was $1,826,182, net of discounts of $238,245 (or $1,587,937).

We have three convertible promissory notes which are in default at June 30, 2022 totaling $341,000. There are no discount balances on these notes.

Short-term notes payable

At June 30,2022, we owed AU$22,000 (US$15,189) to three Australian investors on promissory notes which contain no conversion privileges.

In addition, during the six months ended June 30, 2022 we issued a promissory note in the amount of $54,000, receiving proceeds of $50,000 and incurring an original issue discount of $4,000. On this note, we also issued 1,600,000 common shares as an enticement for this loan which we valued at $3,200, also recorded as a debt discount (for a total initial discount of $7,200). During the six months ended June 30, 2022, we amortized $2,185 of this discount.

Derivative liabilities

The above-referenced convertible promissory notes were analyzed in accordance with EITF 07–05 and ASC 815. EITF 07–5, which is effective for fiscal years beginning after December 15, 2009, and interim periods within those fiscal years. The objective of EITF 07–5 is to provide guidance for determining whether an equity–linked financial instrument is indexed to an entity’s own stock. This determination is needed for a scope exception under Paragraph 11(a) of ASC 815 which would enable a derivative instrument to be accounted for under the accrual method. The classification of a non–derivative instrument that falls within the scope of EITF 00–19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” also hinges on whether the instrument is indexed to an entity’s own stock. A non–derivative instrument that is not indexed to an entity’s own stock cannot be classified as equity and must be accounted for as a liability. The EITF reached a consensus that would establish a two–step approach in determining whether an instrument or embedded feature is indexed to an entity’s own stock. First, the instrument's contingent exercise provisions, if any, must be evaluated, followed by an evaluation of the instrument's settlement provisions.

Derivative financial instruments should be recorded as liabilities in the consolidated balance sheet and measured at fair value. For purposes of this engagement and report, we utilized fair value as the basis for formulating our opinion which has been defined by the Financial Accounting Standards Board (“FASB”) as “the amount for which an asset (or liability) could be exchanged in a current transaction between knowledgeable, unrelated willing parties when neither party is acting under compulsion”. The FASB has provided guidance that its definition of fair value is consistent with the definition of fair market value in IRS Rev. Rule 59–60.

The Company issued certain fixed-rate convertible Subscription Notes from 2015 through June 30, 2022 in the United States and Australia These convertible notes have become tainted (“The Tainted Notes”) as a result of the issuance of convertible promissory notes issued in the United States since there is a possibility (however remote) that the Company would not have enough shares in the Treasury to satisfy all possible conversions.

The Convertible Note derivatives were valued as of issuance; conversion; redemption/settlement; and each quarterly period from March 31, 2018 through June 30, 2022. The following assumptions were used for the valuation of the derivative liability related to the Notes:

· The stock price of $0.00310 at June 30, 2022 which decreased to $0.00070 by June 30, 2022 and would fluctuate with the Company projected volatility.

· The notes convert with variable conversion prices based on the percentages of the low or average trades or bids over 20 to 25 trading days.

· The effective discounts rates estimated throughout the periods range are 37%.

· The Holder would automatically convert the note before maturity if the registration was effective and the company was not in default.

· The projected annual volatility for each valuation period was based on the historic volatility of the company are 140% – 191% (annualized over the term remaining for each valuation).

· An event of default would occur 0% of the time, increasing 1.00% per month to a maximum of 20%.

· The Holders would redeem the notes (with penalties up to 50% depending on the date and full–partial redemption) based on availability of alternative financing of 0% of the time, increasing 1.00% per month to a maximum of 5%.

· The Holder would automatically convert the note at the maximum of 2 times the conversion price or the stock price on the date of valuation.

· The Holder would automatically convert the note based on ownership or trading volume limitations.

We recorded the initial derivative as both a derivative liability and a debt discount (or initial reduction in carrying value of the debt). We then amortized the debt discounts using the Effective Interest Method which recognizes the cost of borrowing at a constant interest rate throughout the contractual term of the obligation. The effective interest rate on the only convertible instrument issued during the six months ended June 30, 2022 range was 112%.

At each reporting date, we determine the fair market value for each derivative associated with each of the above instruments.

Changes in outstanding derivative liabilities are as follows:

Balance, December 31, 2021	$	1,384,775
Changes due to new issuances		61,523
Changes due to extinguishments		(45,351	)
Changes due to adjustment to fair value		(597,073	)
Balance,  June 30, 2022	$	803,874