Note 8 - Convertible Notes | 3 Months Ended |
Mar. 31, 2014 |
Debt Disclosure [Abstract] | ' |
Debt Disclosure [Text Block] | ' |
Note 8 – Convertible Notes |
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Convertible notes consisted of the following: |
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| | March 31, | | | December 31, | |
2014 | 2013 |
Convertible Promissory Note Payable to JMJ Financial, unsecured, one time interest charge of 8%, due on February 22, 2014 (in default) | | $ | 191,663 | | | $ | 191,663 | |
Convertible Promissory Note Payable to Asher Enterprises, unsecured, interest rate of 8% per annum, with payment due on May 19, 2014. | | | - | | | | 35,000 | |
Convertible Promissory Note Payable to Asher Enterprises, unsecured, interest rate of 8% per annum, with payment due on July 23, 2014 | | | 42,500 | | | | 42,500 | |
Convertible Promissory Note Payable to Asher Enterprises, unsecured, interest rate of 8% per annum, with payment due on September 12, 2014 | | | 47,500 | | | | 47,500 | |
Convertible Promissory Note Payable to Carebourn Capital LP, unsecured, interest rate of 8% per annum, with payment due on June 30, 2014 | | | 32,500 | | | | 32,500 | |
Convertible Promissory Note Payable to Carebourn Capital LP, unsecured, interest rate of 8% per annum, with payment due on July 29, 2014 | | | 10,000 | | | | 10,000 | |
Convertible Promissory Note Payable to Carebourn Capital LP, unsecured, interest rate of 8% per annum, with payment due on August 29, 2014 | | | 17,500 | | | | 17,500 | |
Convertible Promissory Note Payable to TCA Global Credit Master Fund, LP, unsecured by all of the Company's assets, interest rate of 12% per annum, with payment due monthly until April 26, 2014 | | | 189,844 | | | | 189,844 | |
Convertible Promissory Note Payable issued in the course of a private placement to individual, unsecured, interest rate of 12% per annum, with payment due on April 9, 2014 or subsequently on demand by holder | | | 140,862 | | | | 140,862 | |
Convertible Promissory Note Payable issued in the course of a private placement to individual, unsecured, interest rate of 8% per annum, with payment due on September 3, 2014 | | | 35,000 | | | | 35,000 | |
Convertible Promissory Note Payable issued in the course of a private placement to individual, unsecured, interest rate of 8% per annum, with payment due on January 26, 2014 | | | 75,000 | | | | 75,000 | |
Convertible Promissory Note Payable to Asher Enterprises, unsecured, interest rate of 8% per annum, with payment due on December 4, 2014 | | | 53,000 | | | | - | |
Convertible Promissory Note Payable to Carebourn Partners LLC, unsecured, interest rate of 8% per annum, with payment due on August 29, 2014 | | | 15,000 | | | | - | |
Convertible Promissory Note Payable to Booski Consulting LLC, unsecured, interest rate of 8% per annum, with payment due on December 17, 2014 | | | 15,000 | | | | - | |
Convertible Promissory Note Payable to Linrick Industries LLC, unsecured, interest rate of 8% per annum, with payment due on December 17, 2014 | | | 15,000 | | | | - | |
| | | 880,369 | | | | 817,369 | |
Less: debt discount | | | (189,256 | ) | | | (247,661 | ) |
| | $ | 691,113 | | | $ | 569,708 | |
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JMJ Financial |
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On February 22, 2011, the Company issued a convertible promissory note in the amount of $1,050,000 to JMJ Financial, Inc. (“JMJ”). The note bears interest in the form of a one-time interest charge of 8%, payable with the note’s principal amount on the maturity date, February 22, 2014. The note is convertible to the Company’s common stock at a price equal to 70% of the average of the three lowest closing market prices of the Company’s common stock for the 20 trading days prior to the conversion date. In connection with the note, the Company entered into a registration rights agreement with JMJ to provide JMJ registration rights for common shares underlying this note. The note will only be funded when the conversion price calculated on each payment date is equal to or greater than $0.015 per share and there are sufficient shares remaining in the registration statement. The principal amount owed to JMJ at March 31, 2014 and December 31, 2013 was $191,663 under the convertible promissory note. The Company analyzed the JMJ note for derivative accounting consideration and determined that the note qualifies for accounting treatment as a financial derivative and recorded an initial discount of $450,000 on the issuance date. During the three months ended March 31, 2014 and 2013, the Company recorded $11,229 and $19,726 of interest expense related to the amortization of the debt discount. At March 31, 2014 and December 31, 2013, there was $0 and $11,229, respectively, of unamortized debt discount related to the JMJ notes. The Company is currently in litigation with JMJ. See Note 10. |
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Asher Enterprises |
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On February 28, 2014, the Company issued convertible promissory notes to Asher Enterprises for proceeds of $53,000 in cash (the “2014 Asher Note”). The note is convertible to the Company’s common stock at a conversion price equal to the greater of (1) 55% multiplied by the average of the lowest three trading prices for the Company’s common stock during the 10 trading day period ending on the latest completed trading day prior to the conversion date and (2) a fixed conversion price of $0.00005 per share. The Company analyzed the 2014 Asher Note for derivative accounting consideration and determined that the conversion feature of these notes qualify for accounting treatment as a financial derivative. The conversion feature of the note was valued at $72,298 on the issuance date. As a result, the note was fully discounted and the fair value of the conversion feature in excess of the principal amount allocated to the note in the amount of $19,298 was expensed immediately as additional interest expense. During the three months ended March 31, 2014, the Company recognized $54,360 of aggregate interest expense related to the amortization of the debt discount on all Asher notes. |
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At March 31, 2014, there was $93,126 of unamortized discount related to the unconverted Asher notes with a total principal balance of $143,000. |
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During the first quarter of 2014, Asher Enterprises converted principal of $35,000 with accrued interest related to a note issued in 2013 into 2,440,149 shares of the Company’s common stock. |
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Carebourn Capital |
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On March 17, 2014, the Company issued a convertible promissory note to Carebourn Capital for proceeds of $15,000 in cash (“2014 Carebourn Note”). The note is convertible to the Company’s common stock at a conversion price equal to the greater of (1) 55% multiplied by the average of the lowest three trading prices for the Company’s common stock during the 10 trading day period ending on the latest completed trading day prior to the conversion date (2) a fixed conversion price of $0.00009 per share. |
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The Company analyzed the 2014 Carebourn Notes for derivative accounting consideration and determined that the conversion feature of these notes qualify for accounting treatment as a financial derivative. The conversion features of these notes were valued at $31,493 on the issuance date. As a result, the notes were fully discounted and the fair value of the conversion feature in excess of the principal amount allocated to the note in the amount of $16,493 was expensed immediately as additional interest expense. During the three months ended March 31 2014, the Company recognized $21,591 of aggregate interest expense related to the amortization of the debt discount on all Carebourn notes. |
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At March 31, 2014, there was $38,673 of unamortized discount related to the unconverted Carebourn notes with a total principal balance of $75,000. |
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TCA Global Credit Master Fund, LP |
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2013 TCA Securities Purchase Agreement |
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On April 26, 2013, the Company entered into a securities purchase agreement with TCA, pursuant to which, TCA shall purchase from the Company up to $2,000,000 of senior secured convertible redeemable debentures (the “Debentures”). The Debentures will be purchased in a series of closings and pursuant to the first such closing, TCA purchased that certain senior convertible redeemable debenture in the amount of $250,000. |
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The Debentures were issued at 7% original issue discount and the discount of $17,500 is amortized over one year, the term of the Debentures, using the straight-line method which approximates the effective interest method due to the short term nature of the note. The note bears interest at a rate of 12% per annum and the Company shall make monthly payments of principal and interest commencing on May 26, 2013 with the first two payments only including interest. During 2013, the Company made principal payments of $77,656 and interest payments of $11,781 to TCA. As of March 31, 2014, the Company was not in compliance with the financial covenants of this credit facility as it was unable to make the scheduled principal and interest payments since November 2013. On February 24, 2014, TCA filed in a Florida court to seek unpaid monthly payments, default interest and penalties related to this facility as part of the credit facility agreement. The Company became delinquent on payments and was notified of default on January 24, 2014. The Company is working with TCA on an amicable payment of past due amounts and seeks to pay the amount left owed to TCA after it receives disbursements from legal settlements, issuance of additional shares, and or proceeds from anticipated sales. |
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The Debentures are convertible at a price determined by multiplying 85% of the average daily volume weighted average price of the Company’s common stock during the five business days immediately preceding the date of conversion. The Company analyzed the Debentures for derivative accounting consideration and determined that the Debentures qualify for accounting treatment as a financial derivative. The conversion feature of the Debentures was valued at $218,053 on the issuance date and recorded as debt discount. As of March 31, 2014, there was $12,072 of unamortized debt discount related to the Debentures. |
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The Company also issued to TCA 9,375,000 shares, which were pledged as security for the securities purchase agreement and was held with an escrow agent until such time as the full payment and performance of all of the obligations of the Company have been satisfied in accordance with the terms of the agreement. The Company also granted TCA the right to vote and receive dividends during the period the 9,375,000 shares were held by the escrow agent. The Company recorded shares issued at par value of $9,375 with an offset to additional paid-in capital. |
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On May 9, 2013, the Company issued 2,000,000 restricted shares to pay for the $100,000 facility fee pursuant to the 2013 TCA securities purchase agreement entered into on April 26, 2013 with TCA. TCA will return all remaining shares to the Company if total net proceeds of $100,000 are reached. The Company will pay cash or issue additional shares if a total of 2,000,000 shares are sold and net proceeds do not total $100,000. The Company has the right to redeem any shares then in TCA’s possession for an amount equal to the $100,000 facility fee less any net proceeds received by TCA from the sales of the Company’s shares. On the issuance date, the Company recorded an expense of $160,000 for the issuance of 2,000,000 shares based on the stock price. At December 31, 2013, TCA had not sold any of the 2,000,000 shares. Accordingly, during the year ended December 31, 2013, the Company accrued an additional expense of $60,000 which represents the difference between the $100,000 facility fee and the fair market value of the 2,000,000 shares at December 31, 2013 of $0.02 per share. No shares were sold by TCA during the three months ended March 31, 2014 and the stock price of the Company’s common stock was $0.02 per share at March 31, 2014. |
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2013 Individual Convertible Notes Payable |
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On September 3, 2013, the Company issued a $35,000 convertible note to an individual. The note matures one year from the date of issuance. Interest accrues at the rate of 8% per year on the outstanding principal amount to be paid at maturity. The principal amount of the Individual Convertible Notes and accrued interest are convertible into the Company’s common stock at a conversion price equal to 75% of the average of the daily volume weighted average prices of the Company's Common Stock during the five trading days immediately prior to the conversion date. The Company analyzed the note for derivative accounting consideration and determined that the conversion feature of the note qualifies for accounting treatment as a financial derivative. The conversion feature of this note was valued at $37,837 on the issuance date. As a result, the note was fully discounted and the fair value of the conversion feature in excess of the principal amount allocated to the note of $2,837 was expensed immediately as additional interest expense. During three months ended March 31, 2014, the Company recognized $9,014 of interest expense related to the amortization of the debt discount. At March 31, 2014, there was $14,384 of unamortized discount related to the note. |
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On October 9, 2013, the Company issued six convertible notes in an aggregate amount of $140,862 to an individual to settle amounts owed by the Company for legal services rendered to the Company. The notes are callable at any time by the holder subsequent to the six month anniversary of the issuance date. Interest accrues at the rate of 12% per year on the outstanding principal amount to be paid at maturity. The principal amount of the note and accrued interest are convertible into the Company’s common stock at a conversion price equal to the average five trading day closing price of the Company’s common stock during the five trading days immediately prior to the conversion date multiplied by two. The Company analyzed the notes for derivative accounting consideration and determined that the conversion feature of the notes qualifies for accounting treatment as a financial derivative. The conversion feature of the notes was valued at an aggregate amount of $35,709 on the issuance date. During the three months ended March 31, 2014, the Company recognized $17,660 of interest expense related to the amortization of the debt discount. At March 31, 2014, there was $1,765 of unamortized discount related to the notes. The Company has determined that it has grounds to dispute the amounts owed to the individual for legal services rendered represented by the aggregate principal amount of the notes. |
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On March 17, 2014, the Company issued convertible notes to two individuals for proceeds of $15,000 each in cash. The notes mature nine months from the date of issuance. Interest accrues at the rate of 8% per year on the outstanding principal amount to be paid at maturity. The notes are convertible to the Company’s common stock at a conversion price equal to 55% multiplied by the average of the lowest three trading prices for the Company’s common stock during the 10 trading day period ending on the latest completed trading day prior to the conversion date. The Company analyzed the notes for derivative accounting consideration and determined that the conversion feature of the notes qualify for accounting treatment as a financial derivative. The conversion feature of the notes was valued at $69,376 on the issuance date. As a result, the note was fully discounted and the fair value of the conversion feature in excess of the principal amount allocated to the note of $39,376 was expensed immediately as additional interest expense. During three months ended March 31, 2014, the Company recognized $1,528 of interest expense related to the amortization of the debt discount. At March 31, 2014, there was $28,473 of unamortized discount related to the note. |