NOTE 6 – CONVERTIBLE NOTES PAYABLE

February to May 2019 Financings

From February 13, 2019 to May 15, 2019, the Company entered into four Securities Purchase Agreements (the "SPAs") with an Accredited Investor ("Investor") for the purchase of a Convertible Promissory Notes in the aggregate principal amount of $244,800 and received net proceeds of $192,000, net of original issue discount of $40,800 and net of origination fees of $12,000.  These Notes bear interest rate ranging from 4% per annum to 12% per annum and were due and payable through May 2020.  The Notes were convertable by the Investor after six months from each respective Note date into shares of the Company's common stock (as determined in the Note) at a price equal to 81% of the average of the lowest two closing bid prices of the common stock as reported on the OTC Link ATS owned by OTC Markets Group for the 10 prior trading days. The Company may prepay the Notes at any time prior to the six-month anniversary, subject to pre-payment charges as detailed in the Notes. The SPAs and Notes contain customary representations, warranties and covenants, including certain restrictions on the Company's ability to sell, lease or otherwise dispose of any significant portion of its assets. Investor also has the right of first refusal with respect to any future equity (or debt with an equity component) offerings of less than $100,000 conducted by the Company until the six-month anniversary of the Note. The SPA and the Note also provide for certain events of default, including, among other things, payment defaults, breaches of representations and warranties, proceedings, delinquency in periodic report filings with the SEC, and cross default with other agreements. In the event of default, at the option of the Investor and in the Investor's sole discretion, the Investor may consider the Note immediately due and payable. The Company has accounted for these convertible promissory notes as stock settled debt under ASC 480 and recorded an aggregate debt premium of $57,423 with a charge to interest expense. On August 15, 2019, the Company issued 295.567 shares of its common stock upon conversion of principal balance of $12,000.

On September 6, 2019, the Company satisfied in full all remaining convertible promissory note obligations with this accredited investor including all Notes and accrued interest for a cash payment of $238,080. In connection with this debt extinguishment, the Company reversed all put premiums recorded and debt remaining debt discounts and recorded a gain on debt extinguishment of $31,009.

September 2019 Financing

On September 6, 2019, the Company closed a Securities Purchase Agreement (the "Purchase Agreement") with an accredited investor. Pursuant to the terms of the Purchase Agreement, the Company issued and sold to this investor a convertible promissory note in the aggregate principal amount of $300,000 (the "Note"), and a warrant to purchase up to 750,000 shares of the Company's common stock (the "Warrant"). The Company received net proceeds of $267,250, net of original issue discount of $30,000 and origination fees of $2,750. The Note bears interest at 12% per annum and becomes due and payable on June 6, 2020.

In accordance with the SPA and the Note, subject to the adjustments as defined in the SPA and Note, the conversion price (the "Conversion Price") shall equal the lesser of: (i) the lowest Trading Price (as defined below) during the previous twenty-five Trading Day period ending on the latest complete Trading Day prior to the date of this Note, and (ii) the Variable Conversion Price (as defined below) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company). The "Variable Conversion Price" shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). "Market Price" means the lowest Trading Price (as defined below) for the Company's common stock during the twenty-five Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the lesser of: (i) the lowest trade price on the applicable trading market as reported by a reliable reporting service ("Reporting Service") designated by the Holder or (ii) the closing bid price on the applicable trading market as reported by a Reporting Service designated by the Holder. The Company may prepay the Note at any time prior to its six-month anniversary, subject to pre-payment charges as detailed in the Note.

The SPA and Note contain customary representations, warranties and covenants, including certain restrictions on the Company's ability to sell, lease or otherwise dispose of any significant portion of its assets. The Investor also has the right of first refusal with respect to any future equity (or debt with an equity component) offerings conducted by the Company until the 12-month anniversary of the Closing. The SPA and the Note also provide for certain events of default, including, among other things, payment defaults, breaches of representations and warranties, bankruptcy or insolvency proceedings, delinquency in periodic report filings with the Securities and Exchange Commission, and cross default with other agreements. Upon the occurrence of an event of default, this investor may declare the outstanding obligations due and payable at significant applicable default rates and take such other actions as set forth in the Note.

The Warrant is exercisable at any time on or after the date of the issuance and entitles this investor to purchase shares of the Company's common stock for a period of five years from the initial date the warrants become exercisable. Under the terms of the Warrant, the holder is entitled to exercise the Warrant to purchase up to 750,000 shares of the Company's common stock at an initial exercise price of $0.10, subject to adjustment as detailed in the Warrant.

This Note and related Warrants include a down-round provision under which the Note conversion price and warrant exercise price could be affected on a full-ratchet basis by future equity offerings undertaken by the Company.

In connection with the issuance of the Note, the Company determined that the terms of the Note contain terms that are not fixed monetary amounts at inception. Accordingly, under the provisions of ASC 815-40 - Derivatives and Hedging – Contracts in an Entity's Own Stock, the embedded conversion option contained in the convertible instrument were accounted for as derivative liability at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives was determined using the Binomial valuation model. At the end of each period and on the date that debt is converted into common shares, the Company revalues the embedded conversion option derivative liabilities. In connection with the issuance of this Note, during the nine months ended September 30, 2019, on the initial measurement date, the fair values of the embedded conversion option derivative of $593,823 was recorded as derivative liabilities and was allocated as a debt discount up to the net proceeds of the Note of $222,720, with the remainder of $371,103 charged to current period operations as initial derivative expense. At the end of the period, the Company revalued the embedded conversion option derivative liabilities and recorded a derivative expense of $9,901, In connection with the revaluation and the initial derivative expense, the Company recorded an aggregate derivative expense of $381,005 during the three and nine months ended September 30, 2019.

In connection with the warrants issued in connection with this Note, the Company determined that the terms of the warrants contain terms that are fixed monetary amounts at inception and, accordingly, the warrants were not considered derivatives. The fair value of the warrants was determined using the Binomial valuation model. In connection with the issuance of the warrants, on the initial measurement date, the relative fair value of the warrants of $44,530 was recorded as a debt discount and an increase in paid-in capital.

During the nine months ended September 30, 2019, the fair value of the derivative liabilities and warrants was estimated using the Binomial valuation model with the following assumptions: 

For the nine months ended September 30, 2019 and 2018, interest expense related to convertible notes and warrants amounted to $116,555 and $0, including amortization of debt discount and debt premium charged to interest expense of $106,465 and $40,691, respectively.

The weighted average interest rate on the above notes and notes payable – related party (see note 7) during the nine months ended September 30, 2019 was 12.8%.

At September 30, 2019 and December 31, 2018, convertible notes consisted of the following: