5. Convertible Notes Payable | 6 Months Ended |
Jun. 30, 2014 |
Notes | ' |
5. Convertible Notes Payable | ' |
5. CONVERTIBLE NOTES PAYABLE |
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Institutional Lender |
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We entered into three securities purchase agreements with an institutional lender on July 8, 2013, September 16, 2013, and January 6, 2014 for the issuance of three 8% convertible promissory notes in the principal amounts of $42,500, $32,500 and $63,000, respectively. The notes are 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 trading prices for our common stock during a ten trading day period ending on the latest complete trading day prior to the conversion date. |
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During the six months ended June 30, 2014, the July 8, 2013 note was fully converted into shares of our common stock, extinguishing a total of $42,500 in principal and $1,700 in accrued interest. During the six months ended June 30, 2014, amortization of debt discount was recorded in the amount of $15,399. |
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During the six months ended June 30, 2014, the September 16, 2013 note was fully converted into shares of our common stock, extinguishing a total of $32,500 in principal and $1,300 in accrued interest. During the six months ended June 30, 2014, amortization of debt discount was recorded in the amount of $19,973. |
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The January 6, 2014 note had a principal balance of $63,000 at June 30, 2014. We recorded a debt discount of $63,000 related to the conversion feature of the January 6, 2014 note, along with a derivative liability at inception. During the six months ended June 30, 2014, amortization of the debt discount was recorded in the amount of $40,091, resulting in a remaining debt discount of $22,909 at June 30, 2014. |
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Securities Purchase Agreement - $299,212 |
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Effective October 24, 2013, the remaining principal balance of certain convertible promissory notes totaling $291,443 and accrued interest of $7,769 were combined in a new 10% convertible promissory note, which matures on October 24, 2014 and which had an aggregate principal balance of $282,462 at December 31, 2013. The 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. During the six months ended June 30, 2014, a total of $33,800 principal and $4,152 accrued interest were converted into shares of our common stock, resulting in a principal balance of $248,662 payable at June 30, 2014. |
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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, and totaled $244,452 at June 30, 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 the six months ended June 30, 2014, total amortization of debt discount was recorded in the amount of $59,008, resulting in a remaining debt discount of $61,951 at June 30, 2014. |
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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. The notes had an aggregate balance of $40,000 at June 30, 2014. During the six months ended June 30, 2014, the balance of the debt discount of $8,849 was amortized to interest expense. We were in default on the notes at June 30, 2014, and are in discussions with the lender to extend the maturity date of the notes. |
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Securities Purchase Agreement - $335,000 |
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On February 27, 2013, we received proceeds of $25,000 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 “$335,000 SPA”). The note had an original issue discount of $4,313 and included a transfer of $2,137 principal and $4,957 accrued interest for total principal owed of $36,406. 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. The note had a balance of $25,122 at December 31, 2013. During the six months ended June 30, 2014, the note was fully converted into shares of our common stock, extinguishing a total of $25,122 in principal. During the six months ended June 30, 2014, the remaining debt discount of $2,137 was amortized to interest expense. |
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On December 10, 2013, we received proceeds of $25,000 pursuant to the $335,000 SPA, with an original issue discount of $4,313 for total principal owed of $29,313. We recorded a debt discount of $29,313 related to the conversion feature of the note and the original issue discount, along with a derivative liability at inception. The note had a balance of $29,313 at December 31, 2013. During the six months ended June 30, 2014, the note was partially converted into shares of our common stock, extinguishing a total of $18,900 in principal and resulting in a principal balance of $10,413 at June 30, 2014. During the six months ended June 30, 2014, amortization of debt discount was recorded in the amount of $23,770, resulting in a remaining discount of $3,856 at June 30, 2014. |
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On February 20, 2014, we received proceeds of $30,000 pursuant to the $335,000 SPA, with an original issue discount of $5,175 for total principal owed of $35,175, which balance was payable at June 30, 2014. We recorded a debt discount of $35,175 related to the conversion feature of the note and the original issue discount, along with a derivative liability at inception. During the six months ended June 30, 2014, amortization of debt discount was recorded in the amount of $12,528, resulting in a remaining discount of $22,647 at June 30, 2014. |
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On June 25, 2014, we received proceeds of $25,000 pursuant to the $335,000 SPA, with an original issue discount of $4,313 for total principal owed of $29,313, which balance was payable at June 30, 2014. We recorded a debt discount of $29,313 related to the conversion feature of the note and the original issue discount, along with a derivative liability at inception. During the six months ended June 30, 2014, amortization of debt discount was recorded in the amount of $402, resulting in a remaining discount of $28,911 at June 30, 2014. |
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If the notes issued under the $335,000 SPA 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. The notes are convertible into shares of our common stock at a price equal to the lesser of $0.72 or 70% of the lowest trading 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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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, and had a balance payable of $29,500 at June 30, 2014. |
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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 matured six months from the effective date, and had a balance payable of $97,000 at June 30, 2014. We were in default on the note at June 30, 2014, and are in discussions with the lender to extend the maturity dateof the note. |
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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, and had a balance payable of $25,000 at June 30, 2014. |
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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 matured on June 30, 2014, is currently in default, and had a balance of $5,000 at June 30, 2014. During the six months ended June 30, 2014, the remaining debt discount of $1,459 was amortized to interest expense. |
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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 $250,000 SPA”). The notes are convertible into shares of our common stock 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 the $250,000 SPA. We recorded a debt discount of $11,000 along with a derivative liability upon transfer. The note had a balance of $11,000 at June 30, 2014. During the six months ended June 30, 2014, the remaining debt discount of $5,863 was amortized tointerest expense. We were in default on the note at June 30, 2014, and are in discussions with the lender to extend the maturity date of the note. |
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On October 21, 2013, we received proceeds of $22,000 pursuant to the $250,000 SPA. We recorded a debt discount of $22,000 along with a derivative liability at inception. The note had a balance of $22,000 at June 30, 2014. During the six months ended June 30, 2014, the remaining debt discount of $13,418 was amortized to interest expense. We were in default on the note at June 30, 2014, and are in discussions with the lender to extend the maturity date of the note. |
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On November 22, 2013, we received proceeds of $25,000 pursuant to the $250,000 SPA. We recorded a debt discount of $25,000 along with a derivative liability at inception. The note had a balance of $25,000 at June 30, 2014. During the six months ended June 30, 2013, the remaining debt discount of $19,613 was amortized to interest expense. We were in default on the note at June 30, 2014, and are in discussions with the lender to extend the maturity date of the note. |
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Securities Purchase Agreement - $500,000 |
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On April 18, 2014, we entered into to a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $500,000 (the “$500,000 SPA”). The notes are convertible into shares of our common stock at a price per share equal to the lesser of: $0.003; 50% of the lowest trade price subsequent to the effective date of the note and prior to the conversion; or the lowest effective price per share granted to any person or entity to acquire common stock subsequent to the effective date of the note. The notes mature eighteen months from the effective date of each advance. |
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On April 18, 2014, we received proceeds of $60,000 pursuant to the $500,000 SPA, which balance was payable at June 30, 2014. We recorded a debt discount of $44,824 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2014, amortization of debt discount was recorded in the amount of $5,971, resulting in a remaining discount of $38,853 at June 30, 2014. |
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On May 20, 2014, we received proceeds of $45,000 pursuant to the $500,000 SPA, which balance was payable at June 30, 2014. We recorded a debt discount of $41,796 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2014, amortization of debt discount was recorded in the amount of $3,122, resulting in a remaining discount of $38,674 at June 30, 2014. |
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On June 30, 2014, we received proceeds of $200,000 pursuant to the $500,000 SPA, which balance was payable at June 30, 2014. We recorded a debt discount of $185,728 related to the conversion feature of the note, along with a derivative liability at inception, which balance was outstanding at June 30, 2014. |
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For purpose of estimating 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 June 30, 2014 are as follows: |
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Stock price on the valuation date | $0.00 |
Conversion price for the debt | $0.001 - $0.0025 |
Dividend yield | 0 |
Years to maturity | 0.25 - 1.50 |
Risk free rate | 0.11% - 0.04 |
Expected volatility | 120.49% - 302.09 |
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The value of the derivative liability balance at June 30, 2014 was $1,252,357. |
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The total gain on settlement of debt related to the conversion of notes payable into shares of our common stock was $5,396 and $20,112 for the three months and six months ended June 30, 2014, respectively. |