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Note 3 - Convertible Promissory Notes
3 Months Ended
Jul. 31, 2018
Notes  
Note 3 - Convertible Promissory Notes

NOTE 3 – CONVERTIBLE PROMISSORY NOTES

 

Following is a summary of our outstanding convertible promissory notes as of July 31, 2018:

 

 

 

 

 

 

Current/

 

 

 

 

 

 

 

 

 

 

Amended

 

Current Balances

 

 

Lender

 

Issue Date

 

Maturity Date

 

Principle

 

Interest

 

Total

RDW Capital, LLC Note 3

 

3/10/2016

 

9/10/16

 

   $          792 

 

   $              -

 

   $         792

RDW Capital, LLC Note 4

 

5/13/2016

 

11/13/16

 

                     - 

 

          4,540

 

           4,540

RDW Capital, LLC Note 5

 

5/20/2016

 

11/20/16

 

                     - 

 

          2,742

 

           2,742

RDW Capital, LLC Note 6

 

8/22/2016

 

2/22/17

 

                     - 

 

             889

 

              889

RDW Capital, LLC Note 7

 

9/1/2016

 

10/31/18

 

          25,701 

 

        15,916

 

        41,617

RDW Capital, LLC Note 8

 

2/6/2017

 

10/31/18

 

             1,221 

 

          5,819

 

           7,040

RDW Capital, LLC Note 9

 

3/30/2017

 

10/31/18

 

          65,598 

 

          8,970

 

        74,568

RDW Capital, LLC Note 10

 

4/26/2017

 

10/31/18

 

                     - 

 

          7,510

 

           7,510

RDW Capital, LLC Note 11

 

5/30/2017

 

10/31/18

 

          81,375 

 

          8,099

 

        89,474

RDW Capital, LLC Note 12

 

8/7/2017

 

10/31/18

 

          52,500 

 

          4,347

 

        56,847

Power Up Lending Gp Note 1

 

10/20/2017

 

7/30/18

 

                     - 

 

                   -

 

                    -

Power Up Lending Gp Note 2

 

11/16/2017

 

8/30/18

 

          34,555 

 

          3,173

 

        37,728

Power Up Lending Gp Note 3

 

1/5/2018

 

10/10/18

 

          38,000 

 

          2,676

 

        40,676

Power Up Lending Gp Note 3

 

3/5/2018

 

12/15/18

 

          33,000 

 

          1,645

 

        34,645

Adar Note 1

 

3/5/2018

 

3/5/19

 

          58,289 

 

          2,907

 

        61,196

   Totals

 

 

 

 

 

   $   391,031 

 

   $  69,233

 

   $ 460,264

Unamortized debt discount balance

 

 

 

        (10,416)

 

 

 

 

   Balance sheet balances

 

 

 

 

 

   $   380,615 

 

 

 

 

 

Following is a summary of our outstanding convertible promissory notes as of April 30, 2018:

 

 

 

 

 

Current/

 

 

 

 

 

 

 

 

 

 

Amended

 

Current Balances

 

 

Lender

 

Issue Date

 

Maturity Date

 

Principle

 

Interest

 

Total

RDW Capital, LLC Note 3

 

3/10/2016

 

9/10/16

 

   $          792 

 

   $              -

 

   $         792

RDW Capital, LLC Note 4

 

5/13/2016

 

11/13/16

 

                     - 

 

          4,540

 

           4,540

RDW Capital, LLC Note 5

 

5/20/2016

 

11/20/16

 

                     - 

 

          2,742

 

           2,742

RDW Capital, LLC Note 6

 

8/22/2016

 

2/22/17

 

                     - 

 

             889

 

              889

RDW Capital, LLC Note 7

 

9/1/2016

 

2/1/18

 

          25,701 

 

        15,074

 

        40,775

RDW Capital, LLC Note 8

 

2/6/2017

 

2/1/18

 

          15,975 

 

          5,512

 

        21,487

RDW Capital, LLC Note 9

 

3/30/2017

 

2/1/18

 

          78,750 

 

          7,243

 

        85,993

RDW Capital, LLC Note 10

 

4/26/2017

 

2/1/18

 

                     - 

 

          7,510

 

           7,510

RDW Capital, LLC Note 11

 

5/30/2017

 

2/1/18

 

          81,375 

 

          6,288

 

        87,663

RDW Capital, LLC Note 12

 

8/7/2017

 

2/7/18

 

          52,500 

 

          3,197

 

        55,697

Power Up Lending Gp Note 1

 

10/20/2017

 

7/30/18

 

          66,030 

 

          4,554

 

        70,584

Power Up Lending Gp Note 2

 

11/16/2017

 

8/30/18

 

          36,000 

 

          2,006

 

        38,006

Power Up Lending Gp Note 3

 

1/5/2018

 

10/10/18

 

          38,000 

 

          1,464

 

        39,464

Power Up Lending Gp Note 3

 

3/5/2018

 

12/15/18

 

          33,000 

 

             613

 

        33,613

Adar Note 1

 

3/5/2018

 

3/5/19

 

          52,500 

 

             648

 

        53,148

   Totals

 

 

 

 

 

   $   480,623 

 

   $  62,281

 

   $ 542,904

Unamortized debt discount balance

 

 

 

        (21,225)

 

 

 

 

   Balance sheet balances

 

 

 

 

 

   $   459,398 

 

 

 

 

 

The company determined that each convertible promissory note conversion feature will be settled with a fixed monetary value at settlement and is classified as a liability. Thus, the conversion feature of the notes meets the scope under FASB Accounting Standards Codification ("ASC") 480-10-25-14 Distinguishing Liabilities from Equity.

 

RDW Capital, LLC

 

On May 9, 2016, the Company and RDW entered into a Securities Purchase Agreement (“RDW SPA 2”) with RDW Capital, LLC (“RDW”), a Florida limited liability company. On August 22, 2016, the Company and RDW entered into a Securities Purchase Agreement (“RDW SPA 3”). On September 1, 2016, the Company and RDW entered into a Securities Purchase Agreement (“RDW SPA 4”). On March 31, 2017, the Company and RDW entered into a Securities Purchase Agreement (“RDW SPA 5”). On August 8, 2017, the Company and RDW entered into a Securities Purchase Agreement (“RDW SPA 6”). RDW SPA 2, RDW SPA 3, RDW SPA 4, RDW SPA 5 and RDW SPA 6 may hereinafter be referred to collectively as, the “RDW SPAs”.

 

RDW Note 4 - In connection with RDW SPA 2, on May 13, 2016, the Company issued to RDW a convertible note (“RDW Note 4”) due on November 13, 2016 in the principal amount of $105,000 of which the Company received proceeds of $82,500 after payment of a $5,000 OID, $7,500 of legal fees and $10,000 of due diligence fees.

 

RDW Note 4 was converted into stock down to an interest payable balance of $4,540 in fiscal 2017.

 

RDW Note 5 - In connection with RDW SPA 2, on May 20, 2016, the Company issued to RDW a convertible note (“RDW Note 5”) due on November 20, 2016 in the principal amount of $52,500 of which the Company received proceeds of $45,000 after payment of a $2,500 OID and $5,000 of due diligence fees.

 

RDW Note 5 was converted into stock down to an interest payable balance of $2,742 in fiscal 2017.

 

RDW Note 6 - In connection with RDW SPA 3, on August 22, 2016, the Company issued to RDW a convertible note (“RDW Note 6”) due on February 22, 2017 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 OID and legal and due diligence fees totaling $20,000.

 

During the three months ended July 31, 2018 and 2017, the Company recognized $0 and $108, respectively, of interest expense. RDW began converting the RDW Note 6 principal into shares of common stock beginning in March 2017. During the three months ended July 31 2017, RDW converted $0 31,674 into 579,733 shares, respectively.

 

RDW Note 7 – In connection with RDW SPA 4 under which RDW agreed to purchase an aggregate of up to $367,500 in principal amount of notes, on September 1, 2016, the Company issued to RDW a convertible note (“RDW Note 7”) due on March 1, 2017 in the principal amount of $157,500 of which the Company received proceeds of $130,000 after payment of a $7,500 OID and legal and due diligence fees totaling $20,000. The second tranche for $210,000 will occur on the date that is two trading days from the date a registration statement is declared effective by the SEC. On November 30, 2017, the Company and RDW agreed to amend RDW Note 7 to extend the Maturity Date to February 1, 2018. On March 16, 2018, the Company and RDW agreed to amend RDW Note 7 to extend the Maturity Date to October 31, 2018.

 

RDW Note 7 principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the BCF. The calculated intrinsic value was $105,000. As this amount resulted in a total BCF debt discount that was less than RDW Note 7 principal, the full $105,000 discount was recognized. The resulting $132,500 discount was accreted over the 6 month term of RDW Note 7 through March 1, 2017.

 

During the three months ended July 31, 2018 and 2017, the Company recognized $842 and $2,948, respectively, of interest expense.  RDW began converting the RDW Note 7 principal into shares of common stock beginning in May 2017. During the three months ended July 31 2017, RDW converted $51,024 into 3,479,200 shares.

 

RDW Note 8 – In connection with RDW SPA 4, on February 6, 2017, the Company issued to RDW a convertible note (“RDW Note 8”) due on August 5, 2017 in the principal amount of $210,000 of which the Company received proceeds of $180,000 after payment of a $10,000 OID and legal and due diligence fees totaling $20,000. On November 30, 2017, the Company and RDW agreed to amend RDW Note 8 to extend the Maturity Date to February 1, 2018. On March 16, 2018, the Company and RDW agreed to amend RDW Note 8 to extend the Maturity Date to October 31, 2018.

 

RDW Note 8 principle was discounted for the value of the OID, legal and due diligence fees and intrinsic value of the BCF. The calculated intrinsic value was $217,000. As this amount resulted in a total debt discount that exceeded RDW Note 8 principal, the discount recorded for the BCF was limited to the principal amount of RDW Note 8. The resulting $210,000 discount was accreted over the 6 month term of RDW Note 8 through August 5, 2017.

 

During the three months ended July 31, 2018 and 2017, the Company recognized $306 and $1,030, respectively, of interest expense and $0 and $107,333, respectively, of accretion related to the debt discount. RDW began converting the RDW Note 8 principal into shares of common stock beginning in February 2017. During the three months ended July 31, 2018, RDW converted $14,754 into 57,100,000 shares.

 

RDW Note 9 – In connection with RDW SPA 5, on March 30, 2017, the Company issued to RDW a convertible note (“RDW Note 9”) due on September 29, 2017 in the principal amount of $78,750 of which the Company received proceeds of $62,500 after payment of a $3,750 OID and legal and due diligence fees totaling $12,500. On November 30, 2017, the Company and RDW agreed to amend RDW Note 9 to extend the Maturity Date to February 1, 2018. On March 16, 2018, the Company and RDW agreed to amend RDW Note 9 to extend the Maturity Date to October 31, 2018.

 

RDW Note 9 principle was discounted for the value of the OID, fees and intrinsic value of the BCF. The calculated intrinsic value was $72,000. As this amount resulted in a total debt discount that exceeded RDW Note 9 principal, the discount recorded for the BCF was limited to the principal amount of RDW Note 9. The resulting $78,750 discount was accreted over the 6 month term of RDW Note 9 through September 29, 2017.

 

During the three months ended July 31, 2018 and 2017, the Company recognized $1,727 and $1,602, respectively, of interest expense and $0 and $39,590, respectively, of accretion related to the debt discount. RDW began converting the RDW Note 8 principal into shares of common stock beginning in July 2018. During the three months ended July 31, 2018, RDW converted $13,152 into 99,100,000 shares.

 

RDW Note 10 – In connection with RDW SPA 5, on April 26, 2017, the Company issued to RDW a convertible note (“RDW Note 10”) due on October 26, 2017 in the principal amount of $110,000 of which the Company received proceeds of $90,000 after payment of a $10,000 OID and legal fees totaling $10,000. On November 30, 2017, the Company and RDW agreed to amend RDW Note 10 to extend the Maturity Date to February 1, 2018. On March 16, 2018, the Company and RDW agreed to amend RDW Note 10 to extend the Maturity Date to October 31, 2018.

 

RDW Note 10 principle was discounted for the value of the OID, fees and intrinsic value of the BCF. The calculated intrinsic value was $134,000. As this amount resulted in a total debt discount that exceeded RDW Note 10 principal, the discount recorded for the BCF was limited to the principal amount of RDW Note 10. The resulting $110,000 discount was accreted over the 6 month term of RDW Note 10 through October 26, 2017.

 

During the three months ended July 31, 2018 and 2017, the Company recognized $0 and $2,274, respectively, of interest expense and $0 and $55,604, respectively, of accretion related to the debt discount. RDW began converting the RDW Note 10 principal into shares of common stock beginning in December 2017. During the three months ended July 31, 2018, no debt was converted during the three months ended July 31, 2018.

 

RDW Note 11 – In connection with RDW SPA 5, on May 30, 2017, the Company issued to RDW a convertible note (“RDW Note 11”) due on November 30, 2017 in the principal amount of $81,375 of which the Company received proceeds of $65,000 after payment of a $3,875 OID and legal and due diligence fees totaling $12,500. On November 30, 2017, the Company and RDW agreed to amend RDW Note 11 to extend the Maturity Date to February 1, 2018. On March 16, 2018, the Company and RDW agreed to amend RDW Note 11 to extend the Maturity Date to October 31, 2018.

 

RDW Note 11 principle was discounted for the value of the OID and issuance fees. The BCF intrinsic value was $102,000. As this amount resulted in a BCF that exceeded RDW Note 11 proceeds, accretion of the BCF was limited to $65,000 which was accreted over the 6 month term of RDW Note 11 through November 30, 2017.

 

During the three months ended July 31, 2018 and 2017, the Company recognized $1,810 and $1,129, respectively, of interest expense and $0 and $27,420. Respectively, of accretion related to the debt discount and BCF.

 

RDW Note 12 – In connection with RDW SPA 6, on August 7, 2017, the Company issued to RDW a convertible note (“RDW Note 12”) due on February 7, 2018 in the principal amount of $52,500 of which the Company received proceeds of $46,000 after payment of a $2,500 OID and legal and due diligence fees totaling $4,000. On March 16, 2018, the Company and RDW agreed to amend RDW Note 12 to extend the Maturity Date to October 31, 2018.

 

RDW Note 12 principle was discounted for the value of the OID and issuance fees. The BCF intrinsic value was $107,283. As this amount resulted in a BCF that exceeded RDW Note 12 proceeds, accretion of the BCF was limited to 46,000which was accreted over the 6 month term of RDW Note 12 through February 7, 2018.

 

During the three months ended July 31, 2018, the Company recognized $1,150 of interest expense.

 

RDW Note 3 through RDW Note 12 may hereinafter be referred to collectively as, the “RDW Notes”.

 

The RDW Notes have the following terms and conditions:

 

· The principal amount outstanding accrues interest at a rate of eight percent (8%) per annum.

· Interest is due and payable on each conversion date and on the Maturity Date.

· At any time, at the option of the holder, the RDW notes are convertible, into shares of the Company’s common stock at a conversion price equal to sixty percent (60%) of the lowest traded price of the Company’s common stock in the twenty (20) days prior to the conversion date, at any time, at the option of the holder (the “Conversion Price”).

· The RDW Notes are unsecured obligations.

· The Company may prepay the RDW Notes in whole or in part at any time with ten (10) days written notice to the holder for the sum of the outstanding principal and interest multiplied by one hundred and thirty percent (130%).  RDW may continue to convert the notes from the date of the notice of prepayment until the date of prepayment.

·  Default interest of twenty-four percent (24%) per annum.

· Interest on overdue accrued and unpaid interest will incur a late fee of the lower of eighteen percent (18%) per annum or the maximum rate permitted by law.

· Upon an event of default, RDW may accelerate the outstanding principal, plus accrued and unpaid interest, and other amounts owing through the date of acceleration (“Acceleration”).

· Upon Acceleration, the amount due will b e one hundred thirty percent (130%) of the outstanding principal amount of the Note and accrued and unpaid interest, together with payment of all other amounts, costs, expenses and liquidated damages.

· In the event the Company defaults, at the request of the holder, the Company must pay one hundred fifty percent (150%) of the outstanding balance plus accrued interest and default interest.

· The Company must reserve three (3) times the amount of shares necessary for the issuance of common stock upon conversion. 

· Conversions of the RDW Notes shall not be permitted if such conversion will result in the holder owning more than four point ninety-nine percent (4.99%) of the Company’s common shares outstanding after giving effect to such conversion.

 

In total, during the three months ended July 31, 2018 and 2017, the Company recognized $5,836 and $9,091, respectively, of interest expense and $0 and $229,947, respectively, of accretion related to the debt discount of the RDW Notes.

 

In total, during the three months ended July 31, 2018, RDW converted $27,906 of RDW Note principal and interest into 156,200,000 shares of common stock compared to $82,697 into 4,058,933 shares during the three months ended July 31, 2017.

 

Power Up Lending Group Ltd.

 

Power Up Note 1 – On October 20, 2017 the Company sold and Power Up Lending Group, Ltd. (“Power Up”) purchased a 12% convertible note in the principal amount of $70,000 (the “Power Up Note 1”) of which the Company received $60,300 after payment of legal fees. The Power Up Note 1 matures on July 30, 2018.

 

The intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the Power Up Note 1 and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $44,754 and is being accreted over the 10 month term of the Power Up Note 1 through July 30, 2018.

 

During the three months ended July 31, 2018, the Company recognized interest expense of -$353 and $14,390 of accretion. Power Up began converting the Power Up Note 1 principal into shares of common stock beginning in April 2018. During the three months ended July 31, 2018, RDW converted the remaining balance of $70,230 ($66,030 of principal and $4,200 of interest payable) into 243,760,201 shares.

 

Power Up Note 2 – On November 16, 2017 the Company sold and Power Up purchased a 12% convertible note in the principal amount of $36,000 (the “Power Up Note 2”) of which the Company received $30,000 after payment of legal fees. The Power Up Note 2 matures on August 30, 2018.

 

The intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the Power Up Note 2 and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $23,016 and is being accreted over the 9.5 month term of the Power Up Note through August 30, 2018.

 

During the three months ended July 31, 2018, the Company recognized interest expense of $1,167 and $9,200 of accretion. Power Up began converting the Power Up Note 1 principal into shares of common stock beginning in July 2018. During the three months ended July 31, 2018, RDW converted $1,445 into 12,041,677 shares.

 

Power Up Note 3 – On January 5, 2018 the Company sold and Power Up purchased a 12% convertible note in the principal amount of $38,000 (the “Power Up Note 3”) of which the Company received $32,000 after payment of legal fees. The Power Up Note 3 matures on October 10, 2018.

 

The intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the Power Up Note 3 and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $24,295 and is being accreted over the 10 month term of the Power Up Note through October 10, 2018.

 

During the three months ended July 31, 2018, the Company recognized interest expense of $1,212 and $9,917 of accretion.

 

Power Up Note 4 – On January 5, 2018 the Company sold and Power Up purchased a 12% convertible note in the principal amount of $33,000 (the “Power Up Note 4”) of which the Company received $27,500 after payment of legal fees. The Power Up Note 4 matures on December 15, 2018.

 

The intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the Power Up Note 4 and the total price to convert based on the effective conversion price on the date of issuance. The calculated intrinsic value was $21,098 And is being accreted over the 9 month term of the Power Up Note 4 through December 15, 2018.

 

During the three months ended July 31, 2018, the Company recognized interest expense of $1,032 and $8,586 of accretion.

 

Power Up Note 1 through Power Up Note 4 may hereinafter be referred to collectively as, the “Power Up Note(s)”.

 

The Power Up Notes have identical terms and conditions, including convertibility into common stock, at Power Up’s option any time during the period beginning on the date which is one hundred eighty (180) days following the date of the Power Up Note, at a price for each share of common stock equal to 61% of the average of the lowest two (2) trading prices during the twenty (20) trading days immediately preceding the applicable conversion. In no event shall Power Up effect a conversion if such conversion results in Power Up beneficially owning in excess of 4.99% of the outstanding common stock of the Company. The Power Up Notes and accrued interest may be prepaid within the 180 day period following the issuance date at an amount equal to 115% - 140% of the outstanding principle and unpaid interest. After expiration of the 180 days, the Power Up Note may not be prepaid. Any principal and interest unpaid when due shall bear interest at 22%. Upon the occurrence of an event of default the balance of principle and interest shall become immediately due at the default amount which is equal to the sum of the unpaid principal and unpaid interest multiplied by 150%.

 

In total, during the three months ended July 31, 2018, Power Up converted $71,674 of Power Up Note principal and interest into 255,801,868 shares of common stock.

 

Adar Bays, LLC

 

Adar Note 1 - On March 5, 2018 the Company entered into a Securities Purchase Agreement with Adar Bays, LLC (“Adar”) providing for the purchase of a Convertible Promissory Note in the principal amount of $52,500 (the "Adar Note 1"); and two Collateralized Secured Promissory Notes also in the amount of $52,500 each (the “Adar Collateralized Notes”)(collectively, the “Adar Notes”)  and the delivery by the Registrant of two Back End Notes payable to Adar each in the principal amount of $52,500. The first $52,500 financing closed on March 5, 2018 with the Company receiving net proceeds of $43,500 after payment of legal fees of $6,500 and a 5%, or $2,500 original issue discount. On May 24, 2018 Adar funded $5,789 under one of the Adar Collateralized Notes with the Company receiving net proceeds of $5,500 after payment of a 5% original issue discount.

 

The Adar Notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on or before March 5, 2019. After six months, the Adar Notes are convertible into common stock, at Adar's option, at a conversion price equal to 60% of the lowest trading price of our common stock during the 20 prior trading days prior to conversion. The two Adar Collateralized Notes may only be converted by Adar in the event they are paid in full. In addition, the Adar Note 1 contains pre-payment penalties. The Registrant is only required to make payments on the Back End Notes if Adar funds the Collateralized Notes.

 

Adar has agreed to restrict its ability to convert the Adar Notes and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The Adar Notes are a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. The Adar Notes also provides for penalties and rescission rights if the Company does not deliver shares of its common stock upon conversion within the required timeframes. In the event of default, the note interest rate increases to 24%.

 

The intrinsic value of the Adar Notes BCF exceeded their proceeds thereby limiting the accretion of the BCF to$43,500 and $5,500 for Adar note 1 and the Adar Collateralized Note, respectively. Accretion is over the 12 month term of the Adar Notes through March 5, 2019.

 

During the three months ended July 31, 2018, the Company recognized interest expense of $2,259 and $14,615 of accretion.