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NOTE 8 - CONVERTIBLE LOANS

3 Months Ended

Mar. 31, 2020

NOTE 8 - CONVERTIBLE NOTES

At March 31, 2020 and December 31, 2019, convertible loans consisted of the following:

		March 31,		December 31,
		2020		2019
Promissory notes – Issued in fiscal year 2019, with variable conversion features	$	1,359,750	$	1,908,750
Promissory notes – Issued in fiscal year 2020, with variable conversion features		900,000		-
Total convertible notes payable		2,259,750		1,908,750
Less: Unamortized debt discount		(279,035)		(646,212)
Total convertible notes		1,980,715		1,262,538

Less: current portion of convertible notes		1,979,012		1,251,096
Long-term convertible notes	$	1,703	$	11,442

During the three months ended March 31, 2020 and 2019, the Company recorded interest expense of $295,903 and $65,079 and recognized amortization of discount, included in interest expense, of $457,177 and $151,542, respectively.

During the three months ended March 31, 2020 and 2019, the Company repaid notes of $334,500 and $113,151 and accrued interest of $138,415 and $60,200.

Promissory Notes - Issued in fiscal year 2019

During the year ended December 31, 2019, the Company issued a total of $2,544,250 in notes with the following terms:

·Terms ranging from 6 months to 3 years.

·Annual interest rates ranging from of 8% to 12%.

·Convertible at the option of the holders at issuance or 180 days from issuance.

·Conversion prices are typically based on the discounted (39% or 0% discount) lowest trading prices of the Company’s shares during various periods prior to conversion.

The convertible notes were also provided with a total of 661,216 common shares and warrant to purchase up to 92,000 shares of common stock at exercise price of $2.5 per share for 3 years.

Certain notes allow the Company to redeem the notes at rates ranging from 110% to 150% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the notes include original issue discount and financing costs totaling $278,000 and the Company received cash of $2,266,250.

Promissory Notes - Issued in fiscal year 2020

During the three months ended March 31, 2020, the Company issued a total of $900,000 in notes with the following terms:

·Terms 12 months.

·Annual interest rates 12%.

·Convertible at the option of the holders 180 days from issuance.

·Conversion prices are typically based on the discounted (60% discount) lowest trading prices of the Company’s shares during 30 trading day periods prior to conversion.

Notes allow the Company to redeem the notes at rates ranging from 150% to 200% depending on the redemption date provided that no redemption is allowed after the 180th day. Likewise, the notes include original issue discount and financing costs totaling $90,000 and the Company received cash of $810,000.

Derivative liabilities

The Company determined that the conversion option in the note met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock. The Company will bifurcate the embedded conversion option in the note once the note becomes convertible and account for it as a derivative liability.

The Company valued the conversion features of convertible notes and warrant using the Black Scholes valuation model. During the three months ended March 31, 2020, the fair value of the derivative liability for new notes was $0, as there were no notes that became convertible.

The Company valued the conversion features of convertible notes and warrant using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrant that became convertible for the year ended December 31, 2019 amounted to $4,916,471. $1,313,350 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $3,603,121 was recognized as a “day 1” derivative loss.

Warrants

A summary of activity during the three months ended March 31, 2020 follows:

	Warrants Outstanding
			Weighted Average
	Shares		Exercise Price
Outstanding, December 31, 2019	367,343	$	0.48
Granted	-		-
Reset	10,813,001		0.01
Cashless Exercised	(2,847,010)		0.01
Forfeited/canceled	-		-
Outstanding, March 31, 2020	8,333,334	$	0.01

The reset feature of warrants associated with the convertible note was effective at the time that a separate convertible note with lower exercise price was issued. As a result of the reset features for warrant, the warrants increased by 10,813,001 at $0.0012 per share. We accounted for the issuance of the warrants as liability and recognize the derivative liability (Note 9).

The following table summarizes information relating to outstanding and exercisable warrants as of March 31, 2020:

Warrants Outstanding

Warrants Exercisable

Number of

Shares

Weighted Average

Remaining

Contractual life

(in years)

Weighted Average

Exercise Price

Number of

Shares

Weighted Average

Exercise Price

8,333,334

1.90

0.01

8,333,334

0.01

The intrinsic value of the warrants as of March 31, 2020 is $400,833.