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NOTE 9 - CONVERTIBLE LOANS

9 Months Ended

Sep. 30, 2020

NOTE 9 - CONVERTIBLE NOTES

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

	September 30,		December 31,
	2020		2019
Promissory notes – Issued in fiscal year 2019, with variable conversion features	$	5,000	$	1,908,750
Promissory notes – Issued in fiscal year 2020, with variable conversion features		1,695,327		-
Total convertible notes payable		1,700,327		1,908,750
Less: Unamortized debt discount		(418,872)		(646,212)
Total convertible notes		1,281,455		1,262,538

Less: current portion of convertible notes		1,279,011		1,251,096
Long-term convertible notes	$	2,444	$	11,442

During the nine months ended September 30, 2020 and 2019, the Company recorded interest expense of $689,996 and $349,027 and recognized amortization of discount, included in interest expense, of $1,463,426 and $1,255,815, respectively.

During the nine months ended September 30, 2020 and 2019, the Company repaid notes of $492,190 and $660,401 and accrued interest including prepayment penalty of $552,631 and $295,000.

Conversion

During the nine months ended September 30, 2020, the Company converted notes with principal amounts of $681,118 and accrued interest of $86,313 into 35,813,477 shares of common stock. The corresponding derivative liability at the date of conversion of $3,742,060 was settled through additional paid in capital.

Settlement

On June 10, 2020, the Company settled a convertible note with accrued interest of $64,230 with a total of 650,000 share issuances. The Company issued 200,000 shares in June, 225,000 shares in July and 503,571 shares in August, which included 278,571 true-up shares. As a result, the Company recognized a loss on settlement of debt of $24,699.

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 July 22, 2020, the Company settled a convertible note with accrued interest of $ 64,363 and an original common stock purchase warrant to purchase 20,000 shares of common stock with a total of 650,000 share issuances. During the period ended September 30, 2020, the Company issued 1,038,375 shares which included 388,375 true-up shares. As a result, the Company recognized a loss on settlement of debt of $9,886.

On September 1, 2020, the Company entered into a Multipurpose agreement and issued a new note which a principal balance of $1,045,327 to replace the 15 notes issued from January 2020 to May 2020 which an aggregate principal amount was $985,556 and an aggregate accrued interest was $59,771. The Company also issued another promissory note of $300,000 (Note 7). As a result, the Company recognized a loss on settlement of debt of $300,000.

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 nine months ended September 30, 2020, the Company issued a total of $2,708,771 in notes with the following terms:

·Terms 12 months.

·Annual interest rates 5% or 12%.

·Convertible at the option of the holders 90 or 180 days from issuance.

·Conversion prices are typically based on the discounted (25% or 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 a range from 120% to 125% provided that no redemption is allowed after the 180^th or 185^th day. Likewise, the notes include original issue discount and financing costs totaling $229,444 and the Company received cash of $1,420,000. Certain convertible notes were also provided with a total of 6,500,000 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 nine months ended September 30, 2020, amounted to $2,047,278. $1,006,642 of the value assigned to the derivative liability was recognized as a debt discount to the notes while the balance of $1,040,636 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 nine months ended September 30, 2020 follows:

	Warrants Outstanding
		Weighted Average
	Shares	Exercise Price
Outstanding, December 31, 2019	367,343	$	0.480
Granted	6,500,000		-
Reset	10,813,001		0.012
Cashless Exercised	(4,097,010)		-
Forfeited/canceled	(7,083,334)		-
Outstanding, September 30, 2020	6,500,000	$	0.024

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 September 30, 2020:

Warrants Outstanding

Warrants Exercisable

Number of

Shares

Weighted Average RemainingContractual life (in years)

Weighted Average

Exercise Price

Number of

Shares

Weighted Average

Exercise Price

6,500,000

5.70

0.024

6,500,000

0.024

The intrinsic value of the warrants as of September 30, 2020 is $303,250.