| 5. Convertible Notes payable | Note 5 – Convertible Notes
Payable The following is a description of convertible
notes payable at June 30, 2017: On August 20, 2015, the Company
entered into a convertible promissory note in the principal amount of $400,000 to a then-related party, which was reduced to $360,000
as the result of a prepayment. The note bears interest at 0.28% per annum. It originally matured on March 4, 2015, but its maturity
was extended to September 14, 2016, as described below. The note is subject to acceleration in the event of certain events of default,
contains certain restrictive covenants, and is secured by a pledge of all the membership units in D&C. The note provided that
if an event of default were to occur, the unpaid principal amount and interest accrued thereon would be convertible into shares
of the Company’s common stock at a conversion price per share equal to 50% of the average daily closing price for 3 consecutive
trading days ending on the trading day immediately prior to the conversion date. The note was in default when it was not paid on
March 4, 2015. On August 20, 2015, the holder of the note assigned it to an unrelated third party and on September 14, 2015, the
maturity of the note was extended to September 14, 2016, the holder waived all events of default and any right to receive interest
at the default rate, and the Company agreed that the holder could convert the principal and interest of the note into common stock,
notwithstanding the cure of defaults. On September 14, 2016, the maturity of this note was extended to September 14, 2017. On August
28, 2015, the holder converted $50,000 of principal of the note into 428,571,429 shares of common stock and on March 10, 2016,
the holder converted $60,000 of principal of the note into 189,513,580 shares of common stock. During the three months ended
June 30, 2017, there were no conversions of this note. The principal balance of the note at June 30, 2017, was $250,000. The Company entered into
a convertible promissory note, dated December 15, 2015, in favor of the unrelated party referred to above in the principal amount
of $8,000. This note is convertible into shares of the Company’s common stock at a conversion price equal to the average
of the daily closing price for a share of Common Stock for the 3 consecutive trading days ending on the trading day immediately
prior to the day on which a notice of conversion is delivered. The note matured on December 27, 2016, and bears interest at the
highest lawful rate, but not more than 20% per annum. The Company is currently negotiating an extension of the maturity date. The Company made two convertible
promissory notes, one dated February 11, 2016, and the other dated April 25, 2016, in favor of the unrelated party referred to
above, each in the principal amount of $7,500. Each note is due 1 year after the date on which it was made, bears simple interest
at the rate of 20 percent per annum and is convertible into shares of Common Stock at a conversion price per share equal to 50%
of the average daily closing price for 3 consecutive trading days ending on the trading day immediately prior to the conversion
date. The Company is currently negotiating an extension of the maturity dates. The Company has determined
that the conversion feature embedded in the notes described above contain a potential variable conversion amount which constitutes
a derivative which has been bifurcated from the note and recorded as a derivative liability at fair value, with a corresponding
discount recorded to the associated debt. The excess of the derivative value over the face amount of the note is recorded immediately
to interest expense at inception. The above notes are presented net of a discount of $493 at June 30, 2017, on the accompanying
balance sheet. The Company used the Black-Scholes-Merton valuation model to value the conversion features using the expected life
of each note, average volatility rate of approximately 396% and a discount rate of 0.52% A series of promissory note
conversion agreements that the Company entered into during 2014 with 10 unaffiliated persons in the aggregate amount of $224,500.
These notes are convertible into shares of the Company’s common stock at a conversion price of $0.05 per share. The loans
are non-interest bearing and have no stated maturity date. During the year ended December 31, 2016, the Company entered into agreements
with four of the individuals in which the Company agreed to pay to them an additional amount equal to the current principal balance
(which aggregated $32,000), which was recorded as interest expense. The notes were amended such that the Company agreed to repay
the new balance over 10 monthly equal installments. The Company repaid $25,900 during the year ended December 31, 2016, and $0
during the three months ended June 30, 2017. There was a balance of $220,600 for all 10 of these notes at June 30, 2017. A promissory note conversion
agreement that the Company entered into with an unaffiliated persons in the amount of $10,000. This note is convertible into shares
of the Company’s common stock at a conversion price of $0.05 per share. The note bears interest at 15% per annum and matured
April 3, 2015. The Company is currently negotiating an extension of the maturity date. |
