| Notes Payable | NOTE 4 NOTES PAYABLE From time-to-time, the Company enters into
convertible notes with third parties as indicated below. Under the terms of these notes, the Company is to repay any principal
balance and interest, at 8% per annum at a given maturity date which is generally less than one year. The Company has the option
to prepay the convertible promissory notes prior to maturity at varying prepayment penalty rates specified under the agreement.
The convertible promissory notes are convertible into shares of the Companys common stock after six months as calculated
by multiplying 58% (42% discount to market) by the average of the lowest three closing bid prices during the 10 days prior to the
conversion date. For the below convertible notes, the Company
determined that since the conversion prices are variable and do not contain a floor, the conversion feature represents a derivative
liability upon the ability to convert the loan after the six month period specified above. Since the conversion feature is only
convertible after six months, there is no derivative liability upon issuance. However, the Company will account for the derivative
liability upon the passage of time and the note becoming convertible if not extinguished. On December 19, 2013, the Company issued a
convertible note in favor of Asher Enterprises, Inc. in the principal amount of $37,500 which was funded and effective in January
2014 with terms identified above and has a maturity date of December 23, 2014. The conversion feature was not triggered until July
2014 due to the effective date of the note being in January 2014. The Company calculated the derivative liability
using the Black-Scholes pricing model for the note upon the initial date the note became convertible and recorded the fair market
value of the derivative liability of approximately $35,290, resulting in a discount to the note. The discount was amortized over
the term of the note and accelerated as the note was converted. As of December 31, 2014, the entire discount was amortized to interest
expense, with no remaining unamortized discount and the note was fully converted into 24,537,990 shares of common stock. On May 12, 2015, the Company issued a convertible
note in favor of Vis Vires Group, Inc. in the principal amount of $59,000 with a $4,000 on-issuance discount pursuant to the terms
identified above, with a maturity date of February 14, 2016. In accordance with the terms of the note, the note will become convertible
on November 8, 2015. On-issuance discounts applicable to the above
notes are amortized over the term of such notes. Tarpon Bay Convertible Notes Pursuant to a 3(a)10 transaction with Tarpon
Bay Partners LLC (Tarpon), on November 4, 2013, the Company issued to Tarpon a convertible promissory note in the
principal amount of $25,000 (the Tarpon Initial Note). Under the terms of the Tarpon Initial Note, the Company was
to pay Tarpon $25,000 on the date of maturity which was January 30, 2014. This note was convertible by Tarpon into the Companys
common stock at a 50% discount to the lowest closing bid price for the common stock for the twenty (20) trading days ending on
the trading day immediately before the conversion date. Also pursuant to the 3(a)10 transaction with
Tarpon, on December 23, 2013, the Company issued a convertible promissory note in the principal amount of $50,000 in favor of Tarpon
as a success fee (the Tarpon Success Fee Note). The Tarpon Success Fee Note was due on June 30, 2014. The Tarpon
Success Fee Note was convertible into shares of the Companys common stock at a conversion price for each share of common
stock at a 50% discount from the lowest closing bid price in the twenty (20) trading days prior to the day that Tarpon requests
conversion. Both Tarpon Initial Note and the Tarpon Success
Fee Note (the Tarpon Notes) were issued without funds being received. Accordingly, the notes were issued with a full
on-issuance discount that was amortized over the term of the notes. As of December 31, 2014 the notes were fully amortized. During
the six months ended June 30, 2015 and 2014, amortization of approximately $0 and $51,960, respectively, was recognized to interest
expense related to the discounts on the notes. Because the conversion price was variable and
did not contain a floor, the conversion feature represented a derivative liability upon issuance. Accordingly, the Company calculated
the derivative liability using the Black-Sholes pricing model for the Tarpon Notes upon inception, resulting in a day one loss
of approximately $96,000. The derivative liability was marked to market each reporting date prior to full repayment. As of September
30, 2014, the notes were repaid in full through the payment of $25,000 in cash and issuance of 45,647,727 shares of common stock.
The Company recorded a loss on change of derivative liability of approximately $0 and $20,000 during the six months ended June
30, 2015 and 2014, respectively. AKR Promissory Note On April 8, 2014, the Company issued a promissory
note in favor of AKR Inc, (AKR) in the principal aggregate amount of $350,000 (the AKR Note). The AKR
Note was due on April 8, 2015, but was subsequently extended to June 30, 2015 and further extended to December 31, 2015, and required
the Company to (i) incur interest at five percent (5%) per annum; (ii) issue on April 8, 2014 to AKR warrants allowing them to
buy 7,350,000 common shares of the Company at an exercise price of $0.007 per common share, such warrants to expire on April 8,
2016 (AKR Warrant A); (iii) issue on August 8, 2014 to AKR warrants allowing them to buy 7,350,000 common shares
of the Company at an exercise price of $0.007 per common share, such warrants to expire on April 8, 2016 (AKR Warrant B);
and (iv) issue on November 8, 2014 to AKR warrants allowing them to buy 8,400,000 common shares of the Company at an exercise price
of $0.007 per common share, such warrants to expire on April 8, 2016 (AKR Warrant C, together with AKR Warrant A
and AKR Warrant B, collectively, the AKR Warrants). The Company may prepay the debt, prior to maturity with no prepayment
penalty. The Company valued the AKR Warrants as of the
date of the note and recorded a discount of $42,323 based on the relative fair value of the AKR Warrants compared to the debt.
During the six months ended June 30, 2015 and 2014, the Company amortized $11,335 and $9,681, respectively, of the discount to
interest expense. As of June 30, 2015 unamortized discount of $0 remains. The Company assessed the fair value of the AKR Warrants
based on the Black-Scholes pricing model. See below for variables used in assessing the fair value.
April 8, 2014
Annual dividend yield -
Expected life (years) of 1.41 - 2.00
Risk-free interest rate 0.40 %
Expected volatility 183% - 206 % On April 24, 2014, the Company finalized an
additional $30,000 promissory note in favor of AKR Inc (2nd AKR Note). Under the terms of the agreement, the note
was due on July 24, 2014, although the maturity date was subsequently extended to June 30, 2015, and then further extended to December
31, 2015. Under the terms of this note, the Company is to repay any principal balance and interest, at 5% per annum at maturity.
Company may prepay the debt, prior to maturity with no prepayment penalty. Kodiak Promissory Note On December 17, 2014, the Company entered into
an equity purchase agreement (Purchase Agreement) with Kodiak Capital Group, LLC (Kodiak). Pursuant
to the terms of the Purchase Agreement, for a period of twenty-four (24) months commencing on the date of effectiveness of the
registration statement, Kodiak shall commit to purchase up to $1,500,000 of Put Shares, pursuant to Puts (as defined in the Purchase
Agreement), covering the Registered Securities (as defined in the Purchase Agreement). See Note 9 for more information. As further consideration for Kodiak entering
into and structuring the Purchase Agreement, the Company issued Kodiak a promissory note in the principal aggregate amount of $60,000
(the Kodiak Note) that bears no interest and has maturity date of July 17, 2015. No funds were received from the
Kodiak Note. Because the Kodiak Note was issued for no cash consideration, there was a full on-issuance discount, of which $54,906
was amortized as of June 30, 2015, and $5,094 remains to be amortized. JMJ Convertible Note On April 2, 2015, the Company issued a convertible
note in favor of JMJ Financial in the principal amount of $100,000 out of a total of a possible $250,000, with a maturity date
of April 1, 2017 (the JMJ Note). The JMJ Note was issued with a 10% original issue discount, and is convertible at
any time. The $10,000 on-issuance discount will be amortized over the life of the note. During the three and six months ended June
30, 2015 amortization of the on-issuance discount was $1,219 with $8,781 remaining The Company is to repay any principal balance
due under the note including a one-time charge of 12% interest on the principal balance outstanding if not repaid within 90 days.
The Company has the option to prepay the JMJ Note prior to maturity. The JMJ Note is convertible into shares of the Companys
common stock as calculated by multiplying 60% of the lowest trade price in the 25 trading days prior to the conversion date. Due to the variable conversion feature of the
note, derivative accounting is required. The Company valued the derivative upon issuance and as of June 30, 2015 as indicated below.
The initial value of the derivative liability was $412,212, resulting in a day one loss $312,212. The discount on the convertible
note is being amortized over the life of the note. During the three and six months ended June 30, 2015, amortization of the discount
was $12,192 with $87,808 remaining.
June 30, 2015 April 2, 2015
Annual dividend yield - -
Expected life (years) of 1.75 2.00
Risk-free interest rate 0.64 % 0.55 %
Expected volatility 304.00 % 301.07 % |
