| CONVERTIBLE AND OTHER NOTES PAYABLE | NOTE
8 CONVERTIBLE AND OTHER NOTES PAYABLE Convertible
and Other Notes Payable are as follows:
Commitment Outstanding
as of Available Interest Maturity
Colorado
Medical Finance Services, LLC * $ 500,000 $ 141,900 $ 358,100 17.50 % Sep-16
JSJ 275,000 275,000 12 % Mar-16
Typenex 1,005,000 255,000 750,000 10 % Apr-22
JMJ 900,000 385,000 515,000 10 % Sep-17
Vis
Vires 250,000 254,000 8 % Jun-16 *Line
of Credit. Refer
to Note 15 for subsequent event developments of JSJ and Typenex notes. Revolving
Line of Credit The
Company entered into an unsecured Revolving Line of Credit Agreement with Colorado Medical Finance Services, LLC, dba Gold Gross
Capital LLC, with an effective date of February 16, 2015. The line of credit allows the Company the right to borrow up to $500,000
from the lender from time to time. On March 26, 2015, the lender advanced $250,000 to us under the terms of the line of credit.
Amounts owed under the line of credit are to be memorialized by revolving credit notes in the form attached to the line of credit,
provided that no formal note has been entered into to advance amounts borrowed to date. Amounts borrowed under the line of credit
accrue interest at the rate of 17.5% per annum and can be repaid at any time without penalty. A total of 10% of the interest rate
is payable in cash and the other 7.5% of the interest rate is payable in cash, or coffee goods and services, at the option of
the lender, with our consent. The line of credit expires, and all amounts are due under the line of credit on September
26, 2016. The line of credit contains customary events of default, and upon the occurrence of an event of default the lender can
suspend further advances and require the Company to declare the entire amount then owed immediately due, subject to a 10 day period
pursuant to which we have the right to cure any default. Upon the occurrence of an event of default the amounts owed under the
line of credit bear interest at the rate of 20% per annum. Proceeds from the line of credit can be solely used for working capital
purposes. The lender has no relationship with the Company or its affiliates. As of January 31, 2016, the Company had borrowed
a total of $250,000 under the Line of Credit. As of January 31, 2016 there was $162,347 outstanding which included $141,900 in
principle and $20,448 in interest due. The payments to this line of credit have been made on a month basis. Convertible
Note with JSJ Investments Inc. On
September 9, 2015, we entered into a 12% Convertible Note to JSJ Investments Inc. (JSJ and the JSJ Convertible
Note) in the amount of $275,000. Amounts owed under the JSJ Convertible Note accrue interest at the rate of 12% per annum
(18% upon an event of default). The JSJ Convertible Note is payable by us on demand by JSJ at any time after March 6, 2016. We
have the right to repay the JSJ Convertible Note (a) for an amount equal to 135% of the then balance of such note until the 180th day
following the date of the note, and (b) for an amount equal to 150% of the balance of such note subsequent to the maturity date
(provided the holder consents to such payment after maturity). The
JSJ Convertible Note and all accrued interest is convertible at the option of the holder thereof into the Companys common
stock at any time. The conversion price of the JSJ Convertible Note is 60% (a 40% discount) to the third lowest intra-day trading
price of the Companys common stock during the 10 trading days prior to any conversion date of the note. In the event we
do not issue the holder any shares due in connection with a conversion within three business days, we are required to issue the
holder additional shares equal to 25% of the conversion amount, and an additional 25% of such shares for each additional five
business days beyond such fourth business day that such failure continues. In the event we do not have a sufficient number of
authorized but unissued shares of common stock to allow for the conversion of the note, the discount rate (40%) is increased by
an additional 5%. In
connection with the issuance of the note, we agreed to pay $5,000 of JSJs legal fees. The
JSJ Convertible Note contains standard and customary events of default, including in the event we fail to timely file any and
all reports due with the Securities and Exchange Commission. Upon the occurrence of an event of default, JSJ can demand that we
immediately repay 150% of the outstanding balance of the JSJ Convertible Note together with accrued interest (and default interest,
if any). Pursuant
to the terms of the JSJ Convertible Note, JSJ agreed not to engage in any short sales or hedging transactions of our common stock.
At no time may the JSJ Convertible Note be converted into shares of our common stock if such conversion would result in JSJ and
its affiliates owning an aggregate of in excess of 4.99% of the then outstanding shares of our common stock, provided such percentage
may be increased by JSJ to up to increases to 9.99% upon not less than 61 days prior written notice to us. The
goal is for the Company to utilize this debt as growth capital to help accelerate projects that generate revenue. We
hope to repay the JSJ Convertible Note prior to any conversion. In the event that the JSJ Note is not repaid in cash in its entirety,
Company shareholders may suffer dilution if and to the extent that the balance of the JSJ Note is converted into common stock. Convertible
Promissory Note with Typenex Co-Investment, LLC On
September 14, 2015 (the Closing Date), the Company entered into a Securities Purchase Agreement dated September 14,
2015 (the Typenex SPA) with Typenex Co-Investment, LLC (Typenex). Pursuant to the Typenex SPA, the Company
issued to Typenex a convertible promissory note (the Typenex Note) in the principal amount of $1,005,000, deliverable
in four tranches as described below. The
Typenex Note has a term of 20 months and an interest rate of 10% per annum (22% upon an event of default). The gross
proceeds to the Company from the Typenex Note were $1,005,000, in the form of: (a) an initial tranche of $250,000 in cash (gross
proceeds of $255,000, less $5,000 in expense reimbursements), and (b) three promissory notes of $250,000 each (collectively, the
Investor Notes). Typenex may elect, in its sole discretion, to fund one or more of the Investor Notes. Absent such
an election by Typenex, the Investor Notes will not result in cash proceeds to, or an obligation to repay on the part of, the
Company. Each of the Investor Notes accrue interest at the rate of 10% per annum until paid (provided that all amounts due under
the Investor Notes may be offset against amounts we owe Typenex in Typenexs sole discretion), and as such, we do not anticipate
owing any interest on the Investor Notes until such notes are funded by Typenex. Each of the Investor Notes are secured
by a Membership Interest Pledge Agreement entered into by Typenex for our benefit. Beginning
on the date that is six (6) months after the Closing Date and on the same day of each month thereafter until the maturity date,
so long as any amount is outstanding under the Typenex Note, the Company is required to pay to Typenex installments of principal
equal to $75,000 (or such lesser principal amount as is then outstanding), plus the sum of any accrued and unpaid interest. Payments
of each installment amount may be made in cash, subject to the terms of the note. Alternatively, Typenex or the Company may elect
to convert an installment amount into Common Stock as described below. Beginning
six (6) months after the Closing Date, Typenex may convert the balance of the Typenex Note, or any installment or portion thereof,
utilizing the conversion price calculation set forth below. Generally, the conversion price will be $0.30 per share; however,
in the event the Companys market capitalization falls below $3 million, then the conversion price is the lower of (a) $0.30
per share, and (b) the Market Price. The Market Price is calculated by applying a discount of 40% (provided that under
certain events the discount may be reduced to up to 60%, upon the occurrence of certain events (with a reduction of 5% per event)
such as the value of common stock (as calculated in the note) declining below $0.10 per share; the Company not being Deposit/Withdrawal
At Custodian DWAC eligible; the Companys common stock not being DTC eligible; or the occurrence of any major default
(as described in the note)), to the average of the three (3) lowest intra-day trading prices of the Companys common stock
during the ten (10) trading days immediately preceding the applicable conversion. The Company may also elect to make payment of
installments in the form of equity on substantially the same terms, subject to the terms and conditions of the Typenex Note, and
Typenexs right in certain cases to require a certain portion of such payment to be paid in cash or stock. Additionally,
20 days after shares issued upon redemption of the note are eligible to be freely traded by Typenex (as described in the note),
there is a required true up, whereby Typenex is required to be issued additional shares in the event the trading price of the
Companys common stock has declined from the time of original issuance to the date such shares are free trading
as described in the Typenex Note. The
Company has the right to prepay the Typenex Note under certain circumstances, subject to payment of a 35% prepayment penalty during
the first six months the note is outstanding and 50% thereafter. If,
at any time that the Typenex Note is outstanding, the Company sells or issues any common stock or other securities exercisable
for, or convertible into, Common Stock for a price per share that is less than the conversion price applicable under the Typenex
Note, then such lower price will apply to all subsequent conversions by Typenex for a period of 20 trading days. The
Typenex Note includes customary and usual events of default. In the event of a default, the Typenex Note may be accelerated by
Typenex. The outstanding balance would be immediately due and payable and we are required to repay Typenex additional amounts
(including the value of the amount then due in common stock, at the highest intraday trading price of the amount then due under
the note) and/or liquidated damages in addition to the amount owed under the Typenex Note. In addition, we owe certain fees and
liquidated damages to Typenex if we fail to timely issue shares of common stock under the Typenex Note. Typenex
is prohibited from owning more than 4.99% of the Companys outstanding shares, pursuant to the Typenex Note, unless the market
capitalization of the Companys common stock is less than $10,000,000, in which case Typenex is prohibited from owning more
than 9.99% of the Companys outstanding shares. Amounts
owed by us under the Typenex Note are secured by a first priority security interest granted to Typenex pursuant to the terms of
a Security Agreement entered into with Typenex, in each of the Investor Notes. The
goal is for the Company to utilize this debt as growth capital to help accelerate projects that generate revenue. We
hope to repay the Typenex Convertible Note prior to any conversion. In the event that the Typenex Note is not repaid in cash in
its entirety, Company shareholders may suffer dilution if and to the extent that the balance of the Typenex Note is converted
into common stock. As
of January 31, 2016, the outstanding balance of the Typenex Note was $255,000. Convertible
Promissory Note with JMJ Financial On
September 16, 2015, we sold JMJ Financial (JMJ) a Convertible Promissory Note in the principal amount of up to $900,000
(the JMJ Convertible Note). The initial amount received in connection with the sale of the JMJ Convertible Note was
$350,000, and a total of $385,000 is currently due under the JMJ Convertible Note (not including the interest charge described
below), as all amounts borrowed under the note include a 10% original issue discount. Moving forward, JMJ may loan us additional
funds (up to $900,000 in aggregate) at our request, provided that JMJ has the right in its sole discretion to approve any future
request for additional funding. Each advance under the JMJ Convertible Note is due two years from the date of such advance, with
the amount initially funded under the note due on September 16, 2017. The
JMJ Convertible Note (including principal and accrued interest and where applicable other fees) is convertible into our common
stock, at any time, at the lesser of $0.75 per share or 65% (a 35% discount) of the two lowest closing prices of our common stock
in the 20 trading days prior to the date of any conversion, provided that if we are not DWAC eligible at the time of any conversion
an additional 10% discount applies, and in the event our common stock is not DTC eligible at the time of any conversion, an additional
5% discount applies. The JMJ Convertible Note provides that unless we and JMJ agree in writing, JMJ is not eligible to convert
any amount of the note into common stock which would result in JMJ owning more than 4.99% of our common stock. A
one-time interest charge of 12% was applied to the principal amount of the note, which remains payable regardless of the repayment
(or conversion) date of the note. Until
180 days after the date of the note, we are able to prepay the note assuming we prepay all outstanding principal together with
a penalty of 40% of such amount, interest, fees, liquidated damages (if any), and the original issuance discount due thereon;
and after 160 days, we are not able to prepay the note without JMJs written approval. We
agreed that we would reserve 25 million shares of common stock for conversion of the note. In the event we fail to deliver shares
within four days of the date of any conversion by JMJ, we are required to pay JMJ $2,000 per day in penalties. The
JMJ Convertible Note provides for customary events of default including, our failure to timely make payments under the JMJ Convertible
Note when due, our entry into bankruptcy proceedings, our failure to file reports with the SEC, our loss of DTC eligibility for
our common stock, and the investors loss of the ability to rely on Rule 144. Additionally, upon the occurrence of an event
of default, as described in greater detail in the JMJ Convertible Note, and at the election of JMJ, we are required to pay JMJ,
either (i) the amount then owed under the note divided by the applicable conversion price, on the date the default occurs or the
default amount is demanded (whichever is lower), multiplied by the volume weighted average price on the date the default occurs
or the default amount is demanded (whichever is higher), or (ii) 150% of the principal amount of the note, plus all of the unpaid
interest, fees, liquidated damages (if any) and other amounts due. Any amount not paid when due accrues interest at the rate of
18% per annum until paid in full. JMJ is not required to provide us any written notice in order to accelerate the amounts owed
under the JMJ Convertible Note in the event of the occurrence of an event of default. For
so long as the JMJ Convertible Note is outstanding JMJ agreed not to effect any short sales of our common stock. The
goal is for the Company to utilize this debt as growth capital to help accelerate projects that generate revenue. We
hope to repay the JMJ Convertible Note prior to any conversion. In the event that the JMJ Note is not repaid in cash in its entirety,
Company shareholders may suffer dilution if and to the extent that the balance of the JMJ Note is converted into common stock. Convertible
Promissory Note with Vis Vires Group On
September 24, 2015, we sold Vis Vires Group, Inc. (Vis Vires) a Convertible Promissory Note (with an issuance
date of September 9, 2015) in the principal amount of $254,000 (the Vis Vires Convertible Note), pursuant to a Securities
Purchase Agreement, dated September 9, 2015. The Vis Vires Convertible Note bears interest at the rate of 8% per annum (22% upon
an event of default) and is due and payable on June 11, 2016. The Vis Vires Convertible Note provides for standard and customary
events of default such as failing to timely make payments under the Vis Vires Convertible Note when due and the failure of the
Company to timely comply with Exchange Act reporting requirements. Additionally, upon the occurrence of certain fundamental
defaults, as described in the Vis Vires Convertible Note, we are required to repay Vis Vires liquidated damages in addition to
the amount owed under the Vis Vires Convertible Note. The
principal amount of the Vis Vires Convertible Note and all accrued interest is convertible at the option of the holder thereof
into our common stock at any time following the 180th day after the Vis Vires Convertible Note was issued. The conversion price
of the Vis Vires Convertible Note is equal to the greater of (a) 65% (a 35% discount) multiplied by the average of the lowest
five closing bid prices of our common stock during the ten trading days immediately prior to the date of any conversion; and (b)
$0.00009, provided that the conversion price during major announcements (as described in the Vis Vires Convertible Note) is the
lower of the conversion price on the announcement date of such major announcement and the conversion price on the date of conversion.
In the event we fail to deliver the shares of common stock issuable upon conversion of the note within three business days of
our receipt of a conversion notice, we are required to pay Vis Vires $2,000 per day for each day that we fail to deliver such
shares. The Vis Vires Convertible Note conversion price also includes anti-dilution protection such that in the event we issue
or are deemed to have issued common stock or convertible securities at a price equal to less than the conversion price of the
Vis Vires Convertible Note in effect on the date of such issuance or deemed issuance, the conversion price of the Vis Vires Convertible
Note is automatically reduced to such lower price, subject to certain exceptions in the note, including an exemption for persons
with whom the Company was in discussions regarding an investment at the time the Vis Vires Convertible Note was entered into and
officer and employee issuances/grants. At
no time may the Vis Vires Convertible Note be converted into shares of our common stock if such conversion would result in Vis
Vires and its affiliates owning an aggregate of in excess of 9.99% of the then outstanding shares of our common stock. We
may prepay in full the unpaid principal and interest on the Vis Vires Convertible Note, upon notice, any time prior to the 180th
day after the issuance date. Any prepayment is subject to payment of a prepayment amount ranging from 108% to 133% of the then
outstanding balance on the Vis Vires Convertible Note (inclusive of accrued and unpaid interest and any default amounts then owing),
depending on when such prepayment is made. The
Vis Vires Convertible Note also contains customary positive and negative covenants. We
paid $4,000 of Vis Viress attorneys fees in connection with the sale of the Vis Vires Convertible Note. The
goal is for the Company to utilize this debt and similar debt incurred in the past several weeks as growth capital to help accelerate
projects that generate revenue. We hope to repay the Vis Vires Convertible Note prior to any conversion. In the event
that the Vis Vires Note is not repaid in cash in its entirety, Company shareholders may suffer dilution if and to the extent that
the balance of the Vis Vires Note is converted into common stock. The
Company assessed the classification of its derivative financial instruments as of January 31, 2016, which consist of convertible
instruments and rights to shares of the Companys common stock, and determined that such derivatives meet the criteria for
liability classification under ASC 815. Conversion feature-derivative liability totaled $778,951 at January 31, 2016. Refer to
Note 1 for more detail. Debt
Maturity Schedule The
following table summarizes the Companys annual principal maturities of debt for the five years subsequent to December 31,
2016:
Year ended December
31,
2016 $ 670,900
2017 385,000
2018
2019
2020
Thereafter 255,000
$ 1,310,900 Debt,
net of discounts at January 31, 2016 totaled $1,029,558, which consists of total borrowings and accrued interest of $1,613,666
reduced by $584,108 in related discounts Third
Party Loan In
October 2015, we borrowed $150,000 from a third-party lender. The October 2015 loan has a seven-month term, a total payback amount
of $202,500 and is payable by way of 147 daily payments of $1,378. In November 2015, we borrowed $65,000 from the same lender.
The November 2015 loan has a term of six months, a total payable amount of $89,700 and is payable by way of 126 daily payments
of $712. In January 2016, we borrowed $220,000 from the same lender (of which $91,887.70 was new lending and $128,112.30 was used
to repay the balance on the October 2015 loan). The January 2016 loan has a term of ten months, a total payback amount of $290,400
and is payable by way of 210 daily payments of $1,383. There was $215,173 outstanding as of January 31, 2016. In February 2016,
we borrowed $100,000 from the same lender which has a six-month term, a total payback amount of $130,000 and is payable by way
of 126 daily payments of $1,032. In April 2016, we borrowed $115,000 from the same lender (of which $90,000 was new lending and
the remainder was used to pay back the balance on the November 2015 loan). The April 2016 loan has a term of eight months, a total
payable amount of $158,700 and is payable by way of 168 daily payments of $945. The loans are secured by a security interest in
all of our accounts, equipment, inventory and investment property. We have the right to repay the loans within the first 30 days
after the effective date of each loan at the rate of 85% of the applicable repayment amount and between 31 and 90 days after the
effective date of each loan at the rate of 90% of the applicable repayment amount. The interest rate on these loans range from
30-38% per annum. |
