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NOTE 9 - CONVERTIBLE LOANS

6 Months Ended

Jun. 30, 2020

NOTE 9 - CONVERTIBLE NOTES

At June 30, 2020 and December 31, 2019, convertible notes consist of the following:

		June 30,		December 31,
		2020		2019
Promissory notes – Issued in fiscal year 2019, with variable conversion features	$	142,750	$	1,908,750
Promissory notes – Issued in fiscal year 2020, with variable conversion features		1,435,556		-
Total convertible notes payable		1,578,306		1,908,750
Less: Unamortized debt discount		(460,383)		(646,212)
Total convertible notes		1,117,923		1,262,538

Less: current portion of convertible notes		1,115,852		1,251,096
Long-term convertible notes	$	2,071	$	11,442

During the six months ended June 30, 2020 and 2019, the Company recorded interest expense of $643,693 and $144,172 and recognized amortization of discount, included in interest expense, of $706,773 and $523,941, respectively.

During the six months ended June 30, 2020 and 2019, the Company repaid notes of $477,190 and $221,901 and accrued interest including prepayment penalty of $138,415 and $120,006.

Conversion

During the six months ended June 30, 2020, the Company converted notes with principal amounts of $616,118 and accrued interest of $85,383 into 33,821,613 shares of common stock. The corresponding derivative liability at the date of conversion of $3,661,588 was settled through additional paid in capital.

Settlement

On June 26, 2020, the Company issued a loan payable of $700,000 to Labrys Fund to settle the previously-outstanding convertible notes with accrued interest of $986,340. As a result, the Company recognized a gain on settlement of debt of $286,340 (Note 7).

On June 10, 2020, the Company settled a convertible note with accrued interest of $64,230 with a total of 650,000 share issuances. As of June 30, 2020, the Company issued 200,000 shares and shall issue 225,000 shares each in July and August 2020. As a result, the Company recognized a loss on settlement of debt of $3,110.

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 six months ended June 30, 2020, the Company issued a total of $1,449,444 in notes with the following terms:

·Terms 12 months.

·Annual interest rates 5% or 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. Certain note has a capped conversion price of $0.025.

Notes allow the Company to redeem the notes at 125% provided that no redemption is allowed after the 180th day. Likewise, the notes include original issue discount and financing costs totaling $189,444 and the Company received cash of $1,260,000. Certain convertible notes were also provided with a total of 4,500,000 warrants.

Derivative liabilities

The Company determined that the conversion option in the notes met the definition of liabilities in accordance with ASC Topic No. 815 - 40, “Derivatives and Hedging - Contracts in Entity’s Own Stock.” The Company will bifurcate the embedded conversion options in the notes once the notes become convertible and account for them as derivative liabilities.

The Company valued the conversion features of convertible notes and warrants using the Black Scholes valuation model. The fair value of the derivative liability for all the note and warrants that became convertible for the six months ended June 30, 2020, amounted to $426,390. $331,499 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $94,891 was recognized as a “day 1” derivative loss.

The fair value of the derivative liability for all the notes and warrants 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 six months ended June 30, 2020 follows:

	Warrants Outstanding
			Weighted Average
	Shares		Exercise Price

Outstanding, December 31, 2019	367,343	$	0.48
Granted	4,500,000		-
Reset	10,813,001		0.012
Cashless Exercised	(7,013,677)		-
Forfeited/canceled	-		-
Outstanding, June 30, 2020	8,666,667	$	0.006

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

The following table summarizes information relating to outstanding and exercisable warrants as of June 30, 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

8,666,667

0.79

0.006

8,666,667

0.006

The intrinsic value of the warrants as of June 30, 2020 is $667,600.