Gain on Exchange and Extinguishment of Liabilities

3 Months Ended

Mar. 31, 2022

Gain On Exchange And Extinguishment Of Liabilities

Gain on Exchange and Extinguishment of Liabilities

Note 9 – Gain on Exchange and Extinguishment of Liabilities

During the three months ended March 31, 2022 and 2021, the Company recorded gains on the extinguishment of liabilities through the negotiation of settlements with certain creditors and through the operation of law as follows:

	Three months ended March 31,
	2022		2021
Gain (loss) on Exchange and Extinguishment of Liabilities:
Gain on exchange and extinguishment of liabilities	$	—	$	124,177
Gain from settlement of litigation (See Note 11)		—		23,000
Loss from retirement of convertible note payable (See Notes 3)		—		(115,805	)
Total	$	—	$	31,372

Gain on exchange and extinguishment of liabilities - On March 31, 2021, the Company entered into Debt Settlement Agreements with six creditors (five of which were related parties) which extinguished accounts payable and accrued liabilities totaling $2,866,497 in exchange for the issuance of $28,665 in principal balance of 3% Convertible Promissory Notes (the “3% Notes”) with detachable warrants to purchase 5,732,994 shares of Common Stock for $0.50 per share. The 3% Notes allows for prepayment at any time with all principal and accrued interest becoming due and payable at maturity on March 30, 2026. The 3% Notes are convertible as to principal and any accrued interest, at the option of holder, into shares of the company’s Common Stock at any time after the issue date and prior to the close of business on the business day preceding the Maturity Date at the rate of fifty cents ($0.50) per share, subject to normal and customary adjustment.

The warrants to purchase 5,732,994 shares of common stock issued pursuant to the Debt Settlement Agreements were valued at $1,605,178 using the black-scholes methodology. The following assumptions were used in calculating the estimated fair value of the warrants as of March 31, 2021, their date of issuance:

	As of March 31, 2021
Volatility – range		374.0	%
Risk-free rate		0.92	%
Contractual term		5.0 years
Exercise price	$	0.50
Number of warrants in aggregate		5,732,994

An aggregate of $2,577,727 of the total accounts payable and accrued liabilities that were extinguished were with five related parties. Such related parties were issued $25,777 principal balance of the 3% Convertible Promissory Notes and warrants to purchase 5,155,454 shares of Common Stock in exchange for the extinguishment of their respective debt obligations. The Company recognized a gain on extinguishment of liabilities for the portion of the extinguishment with non-related parties. Furthermore, it recognized the portion of the gain on extinguishment of liabilities with related parties as a contribution of capital.

The gain on extinguishment of liabilities from the Debt Settlement Agreements was determined as follows:

	Amount
Total accounts payable and accrued liabilities extinguished	$	2,866,497
Less: Principal balance of 3% Convertible Promissory Notes issued		(28,665	)
Less: Fair value of warrants to purchase common stock issued		(1,605,178	)
Total gain on extinguishment of liabilities	$	1,232,654
Less: Related party amounts reported as a capital contribution		(1,108,477	)
Gain on extinguishment of liabilities	$	124,177