Note 5 - Convertible Notes Payable | Convertible notes payable consist of the following: As of June 30, December 31, 2017 2016 VariousConvertibleNotes (a) $ 55,000 $ 55,000 TarponConvertibleNote (b) - 33,500 TarponConvertibleNote (c) 33,000 - Ylimit,LLC (d) 449,000 300,000 Total Convertible Notes 537,000 388,500 Discount (287,836 ) (244,534 ) Convertible notes, net $ 249,164 $ 143,966 __________ (a) In August 2014 the Company issued a series of convertible notes with various interest rates ranging up to 10% per annum. The Note Conversion Price is determined as follows: (a) if the Note is converted upon the Next Equity Financing, an amount equal to 80% of the price paid per share paid by the investors in the Next Equity Financing; (b) if the Note is converted in the event of a Corporate Transaction, a price per share derived by dividing a pre-money valuation of $8,000,000 by the number of shares outstanding immediately prior to the time of such conversion, on a fully diluted basis; or (c) if the Note is converted as part of a Maturity Conversion, a price per unit derived by dividing a pre-money valuation of $8,000,000 by the total number of units (restricted and non-restricted) outstanding immediately prior to the time of such conversion, on a fully diluted basis. The notes are due and payable on demand at any time after the earlier of (i) 36 months following the note issuance or (ii) the consummation of a corporate transaction if not previously converted. The balance of the notes outstanding was $55,000 as of June 30, 2017 and December 31, 2016, of which $30,000 was due to related parties. (b) On June 15, 2015, as a condition for the execution of an Equity Purchase Agreement with Tarpon (See Note 10), the Company issued a Promissory Note to Tarpon in the principal amount of $50,000 with an interest rate at 10% per annum and a maturity date of December 31, 2015. The note was recorded as financing cost upon issuance. On February 26, 2016, the Company and Tarpon entered into an amendment to the Promissory Note. The amendment added a conversion feature to the Note so that the Note and all accrued interest are convertible into shares of the Companys common stock at a conversion price equal to 80% of the lowest closing bid price of the common stock for the 30 trading days preceding the conversion date, and the maturity date was extended to December 31, 2016. During 2016, Tarpon converted aggregate principal and interest of $20,385 into 3,488,075 shares of the Companys common stock. During the six months ended June 30, 2017, Tarpon converted its remaining aggregate principal and interest balance of $36,405 into 3,307,959 shares of the Companys common stock and the Note was retired. (c) On March 11, 2017 the Company issued a convertible note to Tarpon in the principal amount of $33,000 which included a 10% original issue discount, or $3,000, with an interest rate at 10% per annum and a maturity date of December 31, 2017. The Note Conversion is determined as follows: The note is convertible into shares of the Companys common stock at the lessor of (i) 50% of the lowest closing bid price in the 30 trading days prior to the date that the note was issued or (ii) 50% of the lowest closing bid price in the 30 trading days prior to the day that the Holder requests conversion; unless otherwise modified by mutual agreement between the Parties (the Conversion Price); provided that if the closing bid price for the common stock on the Clearing Date (defined below) is lower than that used for the Conversion Price, then the Conversion Price shall be adjusted such that the Discount shall be taken from the closing bid price on the Clearing Date, and the Company shall issue additional shares to Holder to reflect such adjusted conversion price. On July 14, 2017, the Company paid the remaining outstanding principal and interest balance of $37,950 in cash and the Note was retired. (d) On May 9, 2016 the Company issued a convertible note in the principal amount of $100,000 with interest at 10% per annum and due on May 9, 2018. The Note Conversion Price is determined as follows: if the Company receives equity funding of $1 million or more, then the Lender may choose to either convert the Note into shares of the Companys common stock or request repayment of the principal and interest on the Note. If the Lender chooses to convert the Note, then the Lender shall receive the number of shares equal to the dollar amount of principal and interest owed by the Company as of the date of the conversion divided by 85% of the per share stock price in the equity funding. If the Company borrows additional amounts above the initial $100,000, then the Lender shall receive the number of shares equal to the dollar amount of principal and interest of those additional borrowings owed by the Company as of the date of the conversion divided by 75% of the per share stock price in the equity funding. On July 18, 2016, August 10, 2016 and September 30, 2016, the note was amended to authorize additional borrowings of $50,000 on each of the dates listed with the terms remaining the same except as noted above. The Note is secured by the Companys rights, titles and interests in all the Companys tangible and intangible assets, including intellectual property and proprietary software whether existing now or created in the future. During the six months ended June 30, 2017, the Company received additional borrowings of $149,000. Subsequent to June 30, 2017, the Company received additional borrowings of $53,000. The Company considered the current FASB guidance of Contracts in Entitys Own Stock which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers control means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Companys own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the Notes, the initial fair value of the embedded conversion feature was recorded as debt discount offsetting the fair value of the Notes and the remainder recorded as financing costs in the Condensed Consolidated Statement of Operations. The discount is being amortized using the effective interest rate method over the life of the debt instruments. As of December 31, 2016, the unamortized debt discount was $244,534. During the six months ended June 30, 2017, the Company issued $182,000 of convertible notes and created a derivative liability upon issuance with a fair value of $294,863, of which $182,000 was recorded as a valuation discount, and the remaining $112,863 was recorded as a financing cost. During the six months ended June 30, 2017, amortization of debt discount was $138,698. The unamortized balance of the debt discount was $287,836 as of June 30, 2017. For the purposes of Balance Sheet presentation, convertible notes payable have been presented as follows: June 30, 2017 December 31, 2016 Convertible notes payable, net $ 222,108 $ 121,865 Convertible notes payable, related party, net 27,056 22,101 Total $ 249,164 $ 143,966 |