6. Convertible Notes Payable | 12 Months Ended |
Dec. 31, 2013 |
Notes | ' |
6. Convertible Notes Payable | ' |
6. CONVERTIBLE NOTES PAYABLE |
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Institutional Lender |
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We entered into two securities purchase agreements on September 19, 2012 and December 12, 2012, for the issuance of two 8% convertible promissory notes in the aggregate principal amount of $75,000. The notes were convertible into shares of our common stock at a price equal to a variable conversion price of 58% multiplied by a defined market price, representing a discount of 42%. The market price was defined as the average of the lowest three (3) trading prices for our common stock during a ten trading day period ending on the latest complete trading day prior to the conversion date. Subsequently, during the year ended December 31, 2013 both notes were converted into shares of our common stock, extinguishing a total of $75,000 in principal and $3,000 in accrued interest. |
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We subsequently entered into two additional securities purchase agreements with the same lender on July 8, 2013 and September 16, 2013, for the issuance of two 8% promissory notes in the aggregate principal amount of $75,000. One note matures on April 10, 2014, and the other matures on June 18, 2014. The notes are convertible into shares of our common stock at a variable conversion price determined in the same manner as the first two notes described above. We recorded a debt discount of $75,000 related to the conversion feature of the notes, along with a derivative liability at inception. As of December 31, 2013, total amortization was recorded in the amount of $39,629, resulting in a remaining debt discount of $35,371 at December 31, 2013. |
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Securities Purchase Agreement - $299,212 |
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On December 12, 2012, we exchanged certain promissory notes in the aggregate amount of $327,500 for convertible promissory notes. We entered into securities purchase agreements for the sale of 10% convertible promissory notes in the aggregate principal amount of $327,500, which were convertible into shares of our common stock at a conversion price equal to (a) the lesser of $0.54 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person after the effective date. The notes were to mature one year from the effective date of the note. We recorded a debt discount of $327,500 related to the conversion feature of the note, along with a derivative liability at inception. During 2013, the principal sum of $62,000, plus accrued interest was transferred to another investor, and a total of $36,057 principal and $886 accrued interest were converted into shares of our common stock. During 2013, the aggregate debt discount balance as of December 31, 2012 of $312,740 was fully amortized to interest expense. |
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Effective October 24, 2013, the remaining principal balance of the notes discussed in the preceding paragraph totaling $291,443 and accrued interest of $7,769 were combined in a new 10% convertible promissory note in the aggregate amount of $299,212, which matures on October 24, 2014. The new note is convertible into shares of our common stock at a conversion price equal to (a) the lesser of $0.006 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person after the effective date. A total of $16,750 principal and $1,631 accrued interest were subsequently converted into shares of our common stock, resulting in a principal balance of $282,462 payable at December 31, 2013. |
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Securities Purchase Agreements - Services of $244,452 |
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On December 31, 2012, we entered into convertible promissory notes with three individuals in exchange for services rendered in the aggregate amount of $244,452, including $185,852 with the Chairman of our Board of Directors and our former Chief Executive Officer. We entered into securities purchase agreements for the sale of 5% convertible promissory notes in the principal amount of $244,452, which are convertible into shares of our common stock at a conversion price equal to the lesser of $0.20 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The notes mature two years from their effective dates, or December 31, 2014. We recorded a debt discount of $237,742 related to the conversion feature of the notes, along with a derivative liability at inception. During 2013, total amortization was recorded in the amount of $118,993, resulting in a remaining debt discount of $120,958 at December 31, 2013. |
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Securities Purchase Agreement - $100,000 |
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During 2013, we received total proceeds of $40,000 pursuant to a securities purchase agreement for the sale of 10% convertible promissory notes in the aggregate principal amount of $100,000. The notes are convertible into shares of our common stock at a price equal to a variable conversion price of the lesser of $0.09 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The notes were to mature one year from their effective date. We recorded a debt discount of $40,000 related to the beneficial conversion feature of the notes. During 2013, total amortization was recorded in the amount of $31,151, resulting in a remaining discount of $8,849 at December 31, 2013. |
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Securities Purchase Agreement - $335,000 |
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On October 8, 2012, we received proceeds of $75,000 pursuant to a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $335,000 with a 10% Original Issue Discount (OID) of $35,000. The principal amount of $83,750 outstanding on the note as of December 31, 2012 included the payment of $75,000 plus the unamortized original issue discount of $8,750. We recorded a debt discount of $54,843 related to the conversion feature of the note and $8,750 related to the original issue discount, along with a derivative liability at inception. During 2013, the principal sum of $80,844 was converted into shares of our common stock. The remaining principal balance of $2,906 was transferred to and included in a new note payable to this lender. During 2013, the balance of the debt discount at December 31, 2012 of $43,283 was fully amortized to interest expense. |
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On February 27, 2013, we received additional proceeds of $25,000 on this securities purchase agreement, with an original issue discount of $4,313 for total principal owed of $29,313. We recorded a debt discount of $25,403 related to the conversion feature of the note and the original issue discount, along with a derivative liability at inception. During 2013, total amortization was recorded in the amount of $23,266, resulting in a remaining discount of $2,137 at December 31, 2013. If the notes are repaid before 90 days, the interest rate will be zero percent (0%), otherwise a one-time interest rate of five percent (5%) will be applied to the principal sums outstanding. As of December 31, 2013, all interest was owed. The notes are convertible into shares of common stock of the Company at a price equal to the lesser of $0.72 or 70% of the lowest trade price in the 25 trading days prior to the conversion. The notes mature one year from the effective date of each advance. |
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On December 10, 2013, we received additional proceeds of $25,000 on this securities purchase agreement, with an original issue discount of $4,312 and the transfer of $2,137 principal and $4,957 accrued interest for total principal owed of $36,406. We recorded a debt discount of $29,312 related to the conversion feature of the note and the original issue discount, along with a derivative liability at inception. During 2013, total amortization was recorded in the amount of $1,686, resulting in a remaining discount of $27,626 at December 31, 2013. |
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During 2013, a total of $11,284 principal was converted into shares of our common stock. |
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Securities Purchase Agreement – Accounts Payable of $29,500 |
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On March 14, 2013, we entered into a convertible promissory note in exchange for accounts payable in the amount of $29,500. We entered into securities purchase agreements for the sale of a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $0.15 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matures two years from its effective date, or March 14, 2015. |
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Securities Purchase Agreement - $97,000 |
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On May 29, 2013, we exchanged $97,000 in demand promissory notes for convertible promissory notes pursuant to a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $97,000. The notes are convertible into shares of our common stock at a price equal to a conversion price of the lesser of $0.028 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The note matures six months from the effective date. We recorded a debt discount of $97,000 related to the beneficial conversion feature of the note. During 2013, the debt discount of $97,000 was fully amortized to interest expense. |
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Securities Purchase Agreement – Services of $25,000 |
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On June 4, 2013, we entered into a convertible promissory note with a member of our Board of Directors in exchange for services rendered in the amount of $25, 000. We entered into securities purchase agreements for the sale of a 5% convertible promissory note in the principal amount of $25,000, which is convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.035 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matures three years from its effective date, or June 4, 2016. |
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Securities Purchase Agreement – Chief Executive Officer Services of $15,000 |
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On May 31, 2013, we entered into a convertible promissory note in exchange for services rendered by our Chief Executive Officer in the amount of $15,000. We entered into securities purchase agreements for the sale of a 5% convertible promissory note in the principal amount of $15,000, which is convertible into shares of our common stock at a conversion price equal to the lesser of $0.04 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note was to mature two years from its effective date. Subsequently in 2013, the Chief Executive Officer contributed the note to capital. |
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Securities Purchase Agreement - $5,000 Exchanged Note |
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On September 6, 2013, we exchanged a $5,000 promissory note for a convertible promissory note pursuant to a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $5,000. The note is convertible into shares of our common stock at a price equal to a conversion price of the lesser of $0.0042 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The note matures on June 30, 2014. We recorded a debt discount of $2,536 related to the beneficial conversion feature of the note, along with a derivative liability at inception. During 2013, total amortization was recorded in the amount of $1,077, resulting in a remaining discount of $1,459 at December 31, 2013. |
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Securities Purchase Agreement - $250,000 |
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On October 8, 2012, we entered into to a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $250,000. The notes are convertible into shares of common stock of the Company at a price equal to the lesser of $0.006 or 50% of the lowest trade price subsequent to the effective date of the note and prior to the conversion. The notes mature six months from the effective date of each advance. |
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The lender previously advanced a total of $11,000 in August and September 2013 that was transferred to this agreement. We recorded a debt discount of $11,000 along with a derivative liability upon transfer. During 2013, total amortization was recorded in the amount of $5,137, resulting in a remaining discount of $5,863 at December 31, 2013. |
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On October 21, 2013, we received additional proceeds of $22,000 on this securities purchase agreement. We recorded a debt discount of $22,000 along with a derivative liability at inception. During 2013, total amortization was recorded in the amount of $8,582, resulting in a remaining discount of $13,418 at December 31, 2013. |
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On November 22, 2013, we received additional proceeds of $25,000 on this securities purchase agreement. We recorded a debt discount of $25,000 along with a derivative liability at inception. During 2013, total amortization was recorded in the amount of $5,387, resulting in a remaining discount of $19,613 at December 31, 2013. |
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For purpose of determining the fair market value of the derivative liability, we used the Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative liability at December 31, 2013 are as follows: |
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Stock price on the valuation date | $0.01 |
Conversion price for the debt | $0.0015 - $0.0076 |
Dividend yield | 0.00% |
Years to maturity | 0.16 - 1.00 |
Risk free rate | .13% - .07% |
Expected volatility | 179.95% - 387.96% |
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The value of the derivative liability balance at December 31, 2013 was $2,811,962. |
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The total loss on settlement of debt related to the conversion of notes payable into shares of our common stock was $25,195 for the year ended December 31, 2013. |