Convertible Notes | Note 7. Convertible Notes On July 7, 2017 the Company issued a $153,000 convertible note to a non-affiliate. The note pays interest at a rate of 12% per annum, payable at maturity. The note holder has the right at any time following the initial 180 days of note issuance, to convert all or any part of the outstanding and unpaid principal amount of this note to shares of common stock. The conversion price shall equal the variable conversion price of 65% multiplied by the market price. The market price shall mean the average of the lowest three (3) VWAP’s for the common stock during the ten (10) trading day period ending on the latest complete trading day prior to the conversion date. “VWAP” shall mean the daily dollar volume-weighted average sale price for the common stock on the principal market on any particular trading day. Conversion is subject to limitation of 4.99% beneficial ownership of the outstanding shares of common stock. The notes maturity is January 5, 2019. Prepayment on the note within one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue day is subject to 120% Prepayment amount. On December 5, 2012 and March 27, 2013, the Company sold, through a private placement to accredited investors, three-year 12% convertible notes (“Series B Notes”) in the aggregate principal amount of $1,865,000, and $365,000, respectively. The Notes pay interest at a rate of 12% per annum, payable to the holder at 1% per month, and are convertible into common shares of the Company at $0.10 per share. In addition, each purchaser of the Notes received shares dependent on the dollar amount of Notes purchased. The total number of shares of common stock issued was 5,315,000 shares. On December 1, 2015, the holders of $1,840,000 Series B Notes have agreed to extend the maturity date of the debt outstanding to July 1, 2017 from its original maturity date of December 31, 2015. As part of the extension the Company issued warrants to entitle the holders to purchase up to 1,840,000 shares of common stock at an exercise price of $0.07 per share at any time from December 1, 2015 to July 1, 2018. The Company has valued the warrants at $0.0058 per issued share and recorded a total discount of $10,672 to be amortized over the 18-month extension period. On March 31, 2016, the holders of $50,000 Series B Notes have agreed to extend the maturity date of the debt outstanding to September 1, 2017 from its original maturity date of March 31, 2016. As part of the extension the Company issued warrants to entitle the holders to purchase up to 50,000 shares of common stock at an exercise price of $0.07 per share at any time from March 31, 2016 to September 30, 2018. The Company has valued the warrants at $0.00278 per issued share and recorded a total discount of $139 to be amortized over the 18-month extension period. On March 31, 2016, the holder of $25,000 Series B Notes has agreed to extend the maturity date of the debt outstanding to September 1, 2019 from its original maturity date of March 31, 2016. As part of the extension the Company issued warrants to entitle the holders to purchase up to 25,000 shares of common stock at an exercise price of $0.07 per share at any time from March 31, 2016 to September 30, 2019. The Company has valued the warrants at $0.00583 per issued share and recorded a total discount of $146 to be amortized over the 30-month extension period. On May 22, 2014, the Company sold, through private placement to accredited investors, three-year 12% convertible notes (“Series C Notes”) in the aggregate principal amount of $95,000. The Notes bear interest at a rate of 12% per annum, payable to the holder at1% per month, with the principal amount due on May 31, 2017. The Notes are convertible into shares of the Company’s common stock at an initial conversion rate of $0.15 per share. In addition, each holder of Series C Notes received shares dependent on the dollar amount of Notes purchased. On August 25, 2014, October 31, 2014 and February 17, 2015, the Company sold an additional $75,000, $50,000 and $20,000, respectively of Series C Notes. The total number of shares of common stock issued was 240,000 shares. On March 26, 2014, the Company issued a $300,000 convertible note to a non-affiliate. The note pays interest at a rate of 12% per annum, payable to the holder at 1% per month. In addition to interest payments, the Company is making monthly payments of $5,000 towards the principal balance beginning June 1, 2014 until the note due date of February 28, 2018. The note is convertible into common shares of the Company at $0.15 per share. In addition, the purchaser of the note received 300,000 shares as part of the note agreement. As of March 31, 2018, principal balance of the note was $97,082. In accordance with ASC 470, Debt with conversion and other options, In accordance with ASC 480, Distinguishing Liabilities from Equity, The debt can be transferred without the transfer of the warrants. The warrants can be transferred without the transfer of the debt. The warrants can be exercised while debt still outstanding. In accordance with ASC 470, if the warrants are classified as equity, then the proceeds should be allocated based on the relative fair values of the base instrument and the warrants were valued at $0.0058 per issued share and recorded a total discount of $10,672 to be amortized over 18 months’ extension period. Amortization of the discount for the three months ended March 31, 2018 and 2017 was $0 and $1,773, respectively. A detailed summary of the convertible notes is as follows: Issuance Date Maturity Date APR Conversion Rate Monthly Payment March 31, 2018 Face Value Balance December 31, 2017 Face Value Balance 3-Dec-12 1-Jul-17 12.0 % $ 0.10 $ 250 $ 25,000 $ 25,000 27-Mar 13 1-Jul-17 12.0 0.10 750 45,000 75,000 3-Dec-12 1-Jul-17 12.0 0.10 250 50,000 50,000 3-Dec-12 1-Jul-17 12.0 0.10 260 26,000 26,000 3-Dec-12 1-Jul-17 12.0 0.10 250 25,000 25,000 3-Dec-12 1-Jul-17 12.0 0.10 250 25,000 25,000 3-Dec-12 1-Jul-17 12.0 0.10 250 25,000 25,000 3-Dec-12 1-Jul-17 12.0 0.10 15,000 1,500,000 1,500,000 3-Dec-12 1-Jul-17 12.0 0.10 500 50,000 50,000 3-Dec-12 1-Jul-17 12.0 0.10 150 15,000 15,000 3-Dec-12 1-Jul-18 12.0 0.01 - 237 237 27-Mar-13 30-Sep-17 12.0 0.10 250 25,000 25,000 27-Mar-13 30-Sep-17 12.0 0.10 250 25,000 25,000 27-Mar-13 30-Sep-19 12.0 0.10 250 25,000 25,000 22-May-14 31-May-17 12.0 0.15 500 50,000 50,000 22-May-14 31-May-17 12.0 0.15 225 22,500 22,500 22-May-14 31-May-17 12.0 0.15 225 22,500 22,500 25-Aug-14 31-Jul-17 12.0 0.15 500 50,000 50,000 25-Aug-14 31-Jul-17 12.0 0.15 250 25,000 25,000 31-Oct-14 31-Oct-17 12.0 0.15 500 50,000 50,000 17-Feb-15 17-Feb-18 12.0 0.15 200 20,000 20,000 8-Feb-18 28-Feb-19 12.0 0.1 800 80,000 - 26-Mar-14 28-Feb-18 12.0 0.15 5,971 97,082 125,082 7-Jul-17 5-Jan-19 12.0 Variable - 103,000 153,000 Total Face Value $ 2,381,319 $ 2,409,319 Unamortized Discount (91,194) (188) Total $ 2,290,125 $ 2,409,131 Following are maturities of the long –term debt as of March 31, 2018: Principal Payments 2017 $ 2,056,237 2018 117,082 2019 208,000 Total $ 2,381,319 |