| CONVERTIBLE NOTES PAYABLE, NET | 9 Months Ended |
| Sep. 30, 2014 |
| CONVERTIBLE NOTES PAYABLE, NET | ' |
| CONVERTIBLE NOTES PAYABLE, NET | ' |
| 6. CONVERTIBLE NOTES PAYABLE, NET |
|
| Convertible notes payable consisted of the following: |
|
| | | | |
| | 30-Sep-14 | | 31-Dec-13 |
| | | | |
| Convertible notes payable to Coventry Capital, LLC, net of discount of $3,490, | | | | |
| and $0, respectively | $ | 856,510 | | 960,000 |
| Convertible note payable to Stuart Subotnik, net of discount of $83,000 and $132,799, | | | | |
| respectively | | 297,000 | | 247,201 |
| Convertible notes payable to Asher Enterprises | | - | | 183,000 |
| Convertible notes payable to Tonaquint, net of discount of $219,640 and $26,906, | | | | |
| respectively | | 253,909 | | 81,614 |
| Convertible note payable to Vista Capital Investments, net of discount of $52,966 | | | | |
| and $0, respectively | | 47,034 | | - |
| Convertible notes payable to LG Capital, net of discount of $44,472 and $0, | | | | |
| respectively | | 82,028 | | 25,000 |
| Convertible notes payable to Union Capital, net of discount of $31,708 and $0, | | | | |
| respectively | | 43,792 | | 25,000 |
| Other notes payable, net of discount of $192,002 and $41,602, respectively | | 378,345 | | 255,054 |
| | | | |
| Total convertible notes payable, net of discount | $ | 1,958,618 | | 1,776,869 |
| | | | |
| Note payable consists of the following - | | | | |
| | | | |
| Note payable to Charlie Sheen | $ | 510,000 | $ | 510,000 |
|
| Coventry Capital, LLC Notes |
|
| During 2012, the Company issued a total of $950,000 convertible notes payable to Coventry Capital, LLC. These convertible promissory notes are payable on demand and carried an interest rate of 1% per month (simple interest), until the closing of the voluntary share exchange transaction contemplated under the letter of intent. Thereafter, the interest rate shall adjust to 3% per year, simple interest. Upon closing of the voluntary share exchange transaction contemplated under the letter of intent, the unpaid principal and any accrued and unpaid interest shall be immediately due and payable upon written demand by the holder at any time. |
|
| At any time on or before the maturity date, the holder, at its sole discretion may elect to have all or part of the principal and the accrued and unpaid interest thereon, converted into a number of shares of common stock of the Company determined by dividing (i) the unpaid principal and any accrued and unpaid interest thereon, as of the conversion date, by (ii) the lower of (a) the price per share at which shares of capital stock of the Company are sold in any financing, or (b) $0.50 per share. A "financing" means the sale of shares of capital stock of the Company occurring within twenty four (24) months after the closing. The embedded conversion feature of these notes was recorded as a derivative liability due to the down-round protection of the conversion price. |
|
| On June 17, 2013, the terms of the notes were amended to extend the maturity date to January 31, 2018 and set a floor to the conversion price at $0.08 per share. The Coventry notes were ultimately sold or assigned to other parties. On January 27, 2014, the Company entered into a debt conversion agreement with Cemblance LTD (“Cemblance”), holder of $300,000 of outstanding Coventry notes, for conversion of $150,000 of principal and interest into 4,000,000 shares of the Company’s common stock. |
|
| Coventry Enterprises, LLC Note |
|
| On April 2, 2014, the Company entered into a convertible note with Coventry Enterprises, LLC for $50,000. The note accrues interest at the rate of 10% per annum (default rate of 16%, per annum); is due and payable in one year; and may be converted by Coventry Enterprises at any time after 180 days. The notes are convertible into shares of Company common stock at a conversion price equal to 60% of the lowest closing bid price of the Company’s common stock over the prior 20 trading days calculated at the time of conversion. The notes also contain certain representations, warranties, covenants and events of default. The Company has reserved 8,865,000 shares in connection with this Note, 6,023,473 of which have been issued leaving a balance of 2,841,527 reserved shares. |
|
| Stuart Subotnick Notes |
| On September 10, 2012, the Company issued a $240,000 convertible note payable to Stuart Subotnick. This note was issued with 800,000 warrants and exercisable into the Company’s common stock. The warrants have a three-year term and the exercise price is $0.30. At any time on or before the maturity date, the note holder, at its sole discretion, may elect to have all or part of the principal and the accrued and unpaid interest thereon, converted into a number of shares of common stock of the Company. The conversion price is $0.30 per share, subject to adjustment for issuances or sales of securities at a lower price per share. This convertible promissory note, and accrued and unpaid interest, are payable upon the earlier of i) at any time after three-year anniversary of the issue date of this note at the written request of the holder to the Company or ii) when, upon or after the occurrence of an event of default. The note carries an interest rate of 8% per annum (simple interest). |
|
| The embedded conversion feature of this note was recorded as a derivative liability due to the down-round protection of the conversion prices. The Company also recorded a debt discount of $121,381 for the fair value of the warrants. On December 17, 2013, the holder of the note and the Company agreed to fix the conversion price of the note at $0.0261 per share or 9.9 million shares. |
|
| During October and November 2012, the Company issued additional notes payable to Mr. Subotnick in the aggregate amount of $140,000. These notes accrue interest at rates ranging from 8% to 12% and are due by November 2013. The Company is currently in default of these $140,000 notes payable because the principal balance and accrued interest were not paid on the due date. |
|
| QuickLoan Funding |
|
| On March 13, 2013, the Company entered into a convertible promissory note with QuickLoan Funding, an accredited lender. Under the terms of the note, the lender advanced $110,000 to the Company. The amounts advanced by lender were subject to a 20% original issue discount. In the nine months ended September 30, 2014, the Company received additional $55,000 from the lender, less discounts and fees. During the nine months ended September 30, 2014, QuickLoan Funding converted $55,160 of their notes into 3,233,333 shares of the Company’s common stock and the balance, plus accrued interest, was paid in cash totaling $124,934. |
|
| Charlie Sheen |
|
| On April 16, 2013, the Company executed a Promissory Note (the “Promissory Note”) in favor of celebrity actor, Charlie Sheen, pursuant to which Charlie Sheen has loaned the Company $150,000. Under the terms of the Promissory Note, the principal accrues interest at the rate of 6% per annum and is due and payable on April 10, 2015, with interest only payments of $750 per month to commence on November 1, 2013. During the prior year, the Company borrowed an additional $360,000 from Mr. Sheen under the same terms as the Promissory Note. |
|
| Tonaquint Convertible note |
|
| On April 3, 2013, the Company, entered into a Securities Purchase Agreement, Secured Convertible Promissory Note, Security Agreement, Warrant, Deed of Trust, Deed of Trust Notes, Confession of Judgment and ancillary agreements (the “Financing Documents”) with Tonaquint, Inc., (the “Buyer”). Under the terms of the Financing Documents, the Buyer entered into the Secured Convertible Promissory Note in the principal amount of $340,000 (the “Note”). Initially, $100,000 was advanced under the first $140,000 of the Note, net of an original issue discount (OID) of $30,000 and noteholders costs of $10,000. The Company is obligated to commence repayment of the Note on the 180th day after the Note issuance date by making monthly installments of $28,333. Provided certain equity conditions are met, the Company may repay the monthly installment payments through the issuance of Company common stock at the market price (the “Market Price”) defined as 90% of the arithmetic average of the three (3) lowest volume weighted average pricing “VWAP” of the shares of Common Stock during the twenty (20) consecutive trading day period immediately preceding the date of repayment. Additionally, if the Company pays the installment payment in Company common stock, then 23 days following the installment payment date the noteolder shall receive additional shares of Company common stock if the Market Price on the 23rd day is less than the Market Price on the installment payment date. The entire outstanding balance under the Note is due and payable 17 months after the date of issuance. The Note bears interest at the rate of eight percent (8%) per annum, provided that upon the occurrence of an event of default, interest shall accrue on the outstanding balance both before and after judgment at the rate of twenty-two percent (22%) per annum. |
|
| In July and August 2014, the remaining advances were made under the note at $100,000, each, net of OID of $15,000, each. The Note is secured by a Security Agreement executed by the Company and listing the Buyer Deed of Trust Notes as security for the Company’s obligations under the Financing Documents (the “Security Agreement”). Each of the Buyer Deed of Trust Notes is secured by a Deed of Trust (the “Deed of Trust”). The outstanding balance under the Note may be converted by the Buyer at any time into shares of Company common stock at the rate of $0.105 per share (the “Conversion Price”), subject to adjustment in the event of certain issuances of variable price or unrestricted securities by the Company after the date of the Note. In addition, beginning on the date that is six months after the date the advance was made and the same day of each month thereafter until the maturity date, an installment amount will be due. This installment amount can be paid in cash or converted into shares of the Company's common stock at a conversion price equal to 60% of the market price (as determined in the Note) calculated at the time of conversion. Upon an event of default, the outstanding balance under the Note shall increase to 135% and will be immediately due and payable, and the Buyer may convert the outstanding balance into shares of Company common stock at the lower of the Conversion Price then in effect and the Market Price. |
|
| The Company also issued noteholder a warrant to purchase up to 1,400,000 shares of Company common stock at an exercise price of $0.20 per share, subject to adjustment in the event of certain issuances of variable price and unrestricted securities by the Company after the date of the Note. See below for Warrant extinguishment. The Warrants could have been exercised for a term of five (5) years and have a “cashless exercise” provision. The embedded conversion feature of this note and related warrants have been recorded as a derivative liability due to the down-round protection of the conversion prices. |
|
| During the nine months ended September 30, 2014, Tonaquint converted $94,928 of their notes along with $9,451 in accrued interest into 12,144,866 shares of the Company’s common stock. |
|
| During the nine months ended September 30, 2014, Tonaquint and the Company agreed to cancel the Warrant in exchange for the issuance of a convertible note totaling $285,000. The Note accrues interest at the rate of 8% per annum; is due and payable 17 months after the date of issuance; and may be converted by Tonaquint at any time into shares of Company common stock at a conversion price equal to 90% of the market price (as determined in the Note) calculated at the time of conversion. The Note also contains certain representations, warranties, covenants and events of default. In connection therewith, the Company recorded as loss on the exchange in the amount of $259,000. The note was recorded at approximately $27,000 with the balance allocated to conversion features classified as a derivative liability, in the amount of $258,000. During the nine months ended September 30, 2014, Tonaquint converted approximately $41,000 of the principal balance of this note into 1,614,402 shares of the Company's common stock. The Company has reserved a total of 108,250,000 shares in connection with these Notes, 23,954,543 of which have been issued leaving a balance of 84,295,457 reserved shares. |
|
| Asher Enterprises Notes |
|
| During 2013, the Company entered into several Note Purchase Agreement and Convertible Promissory Note with Asher Enterprises, Inc. pursuant to which Asher purchased a $183,000 Convertible Promissory Note (the “Asher Notes”). The Asher Notes accrue interest at the rate of 8% per annum (default rate of 22%, per annum); is due and payable in several dates in 2014; and may be converted by Asher at any time after 180 days. The notes are convertible into shares of Company common stock at a conversion price equal to 60% of the market price (as determined in the Asher Note) calculated at the time of conversion. The Asher Note Purchase Agreement and Note also contain certain representations, warranties, covenants and events of default. In the event of default, the notes will increase 150% of the debt balance as of the date of default. |
|
| In addition, during the nine months ended September 30, 2014, the Company entered into two additional notes with Asher Enterprises for a total of $75,000. The notes have the same terms and conditions as previously issued notes to Asher. The Company was in default of this note because the Company did not file the 10-Q on time according to SEC filing requirements. The Company recorded an increase in the principal balance of $91,500 during the nine months ended September 30, 2014. |
|
| During the nine months ended September 30, 2014, Asher Notes in the amount of $252,019 in principal and accrued interest, were converted into 15,886,433 shares of the Company’s common stock. |
|
| Vista Capital Investments |
|
| On May 7, 2014, the Company entered into a Convertible Promissory Note with Vista Capital Investments, LLC (“Vista”) in the original principal amount of $150,000 (the “Note”), pursuant to which Vista funded $50,000. On September 26, 2014, Vista funded an additional $50,000 under the Note agreement. The Note has a one-time interest charge of 12%; is due and payable one year after the date of issuance; and may be converted by Vista at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 60% of the market price (as determined in the Note) calculated at the time of conversion. The Note also contains certain representations, warranties, covenants and events of default, and is collateralized by the issuance of 20,000,000 shares of Company common stock. The foregoing is only a brief description of the material terms of the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor. The Company has reserved 75,000,000 shares in connection with this Note, zero of which have been issued leaving the entire balance as reserved shares. |
|
| LG Capital Funding |
|
| On December 10, 2013, the Company entered into Securities Purchase Agreement with LG Capital Funding (“LG”) pursuant to which the Company issued two convertible promissory notes in the aggregate principal amount of $50,000 (the “Notes”), pursuant to which LG funded $25,000 at that date and an additional $25,000 on June 10, 2014, less discounts and fees, The Notes bears interest at the rate of 10% per annum; are due and payable twelve months after the date of issuance; and may be converted by LG at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 55% of the market price (as determined in the Note) calculated at the time of conversion. |
|
| On March 4, 2014, May 9, 2014, June 24, 2014, and August 12, 2014, the Company entered into Convertible Promissory Notes with LG in the original principal amounts of $32,000, $26,500, $36,750, and $47,250, respectively, less discounts and fees (the “Notes”). The Notes bears interest at the rate of 8% or 10% per annum; are due and payable twelve months after the date of issuance; and may be converted by LG at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 55% of the market price (as determined in the Note) calculated at the time of conversion. |
|
| The foregoing is only a brief description of the material terms of the Notes, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor. |
|
| During the nine months ended September 30, 2014, LG converted a total balance of note principal and accrued interest of $67,925 into 8,541,191 shares of the Company's common stock. The Company has reserved a total of 51,945,000 shares in connection with this Note, 7,782,252 of which have been issued leaving a balance of 44,162,748 reserved shares. |
|
| Union Capital |
|
| On March 4, 2014, the Company entered into Securities Purchase Agreement with Union Capital LLC (“Union”) pursuant to which the Company issued three convertible promissory notes in the aggregate principal amount of $90,000 (the “Notes”), pursuant to which Union funded $30,000 at that date and an additional $30,000 on May 12, 2014, less discounts and fees. On July 28, 2014, the Company issued an additional convertible promissory note in the principal balance of $40,000, less discounts and fees. The Notes accrue interest at the rate of 10% per annum; are due and payable 12 months after their date of issuance; and may be converted by Union at any time into shares of Company common stock at a conversion price equal to 55% of the market price (as determined in the Note) calculated at the time of conversion. The Securities Purchase Agreement and Notes also contain certain representations, warranties, covenants and events of default. The foregoing is only a brief description of the material terms of the Securities Purchase Agreement and Notes, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor. |
|
| During the nine months ended September 30, 2014, Union converted a total balance of note principal and accrued interest of $25,775 into 3,678,637 shares of the Company's common stock. The Company has reserved 16,938,000 shares in connection with this Note, zero of which have been issued leaving a balance of 16,938,000 reserved shares. |
|
| Gel Properties |
|
| On December 10, 2013, the Company entered into Securities Purchase Agreement with Gel Properties, Inc. (“Gel”) pursuant to which the Company issued two convertible promissory notes in the aggregate principal amount of $50,000 (the “Notes”), pursuant to which Gel funded $25,000 at that date and an additional $25,000 on June 11, 2014, less discounts and fees, The Notes bears interest at the rate of 10% per annum; is due and payable twelve months after the date of issuance; and may be converted by Gel at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 55% of the market price (as determined in the Note) calculated at the time of conversion. |
|
| The foregoing is only a brief description of the material terms of the Securities Purchase Agreement and Notes, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor. |
|
| During the nine months ended September 30, 2014, Gel converted a total balance of note principal and accrued interest of $51,362 into 5,111,815 shares of the Company's common stock. The Company has reserved 9,892,000 shares in connection with this Note, 6,973,504 of which have been issued leaving a balance of 2,918,496 reserved shares. |
|
| Other Convertible Notes Payable |
|
| Not including notes described above, the Company has entered into notes with balances as of September 30, 2014 of $378,345, net of discounts and fees. These notes consist primarily of convertible notes, with interest rates between 6%-10% and maturity dates between June 30, 2014 and June 24, 2015. The convertible notes are convertible at rates between 50%-60% of the market value of the Company's common stock after six months of issuance. The Company has reserved shares under these notes. |
|
| Related Party Note Payable |
|
| Effective January 30, 2013, the Company entered into a Promissory Note with Martin W. Greenwald, the Company’s Chief Executive Officer, pursuant to which Mr. Greenwald has agreed to loan the Company up to $250,000 to fund Company operations. The Promissory Note provides that Mr. Greenwald may advance funds to the Company from to time to time, up to the amount of $250,000. The amounts advanced shall be due within one year from the date of the promissory note and shall accrue interest at 3% per annum. The Company had $126,160 outstanding under the loan agreement as of December 31, 2013. Amounts were repaid during the nine months ended September 30, 2014 totaling approximately $54,000. The balance due, including accrued salaries, was settled through the issuance of common stock as discussed in Note 9. No amounts are due at September 30, 2014. |
