| 5. Convertible Notes Payable | 5. CONVERTIBLE NOTES PAYABLE Securities Purchase Agreement - $299,212 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, which has been fully amortized to interest expense, along with a derivative liability at inception. During 2013, the principal sum of $62,000, plus accrued interest was transferred to another investor. 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 matured 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 through the issuance of securities after the effective date. After conversions to our common stock during 2013 and 2014, the note had a principal balance of $233,012 payable at December 31, 2014. During the six months ended June 30, 2015, a total of $23,800 principal and $5,478 accrued interest were converted into shares of our common stock, resulting in a principal balance of $209,212 payable at June 30, 2015. The maturity date of the note was extended to June 30, 2016. Securities Purchase Agreements - Services of $244,452 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. One of the notes with a principal balance of $25,980 at June 30, 2015 matured on December 31, 2014 and is currently in default. The other two notes mature on December 31, 2015. We recorded a debt discount of $237,742 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception. Securities Purchase Agreement - $100,000 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. The maturity dates have been extended to June 30, 2016. We recorded a debt discount of $40,000 related to the beneficial conversion feature of the notes, which has been fully amortized to interest expense. Securities Purchase Agreement Accounts Payable of $29,500 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 matured two years from its effective date, or March 14, 2015, and is currently in default. Securities Purchase Agreement - $97,000 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 note is 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 maturity date of the note was extended to June 30, 2016. We recorded a debt discount of $97,000 related to the beneficial conversion feature of the note, which has been fully amortized to interest expense. Securities Purchase Agreement Services of $25,000 On June 4, 2013, we entered into a convertible promissory note with a former 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. Securities Purchase Agreement - $5,000 Exchanged Note 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, 2016. We recorded a debt discount of $2,536 related to the beneficial conversion feature of the note, which has been fully amortized to interest expense, along with a derivative liability at inception. Securities Purchase Agreement - $250,000 On October 8, 2012, we entered into to a securities purchase agreement for the sale of 10% convertible promissory notes in the 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 maturity dates of the notes were extended to June 30, 2016. 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, which has been fully amortized to interest expense, along with a derivative liability upon transfer. On October 21, 2013, we received additional proceeds of $22,000 on this securities purchase agreement. We recorded a debt discount of $22,000, which has been fully amortized to interest expense, along with a derivative liability at inception. On November 22, 2013, we received additional proceeds of $25,000 on this securities purchase agreement. We recorded a debt discount of $25,000, which has been fully amortized to interest expense, along with a derivative liability at inception. April 2014 Securities Purchase Agreement - $500,000 On April 18, 2014, we entered into a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $500,000 (the April 2014 $500,000 SPA). The advance amounts received are at the lenders discretion. The notes are convertible into shares of our common stock at a price per share equal to the lesser of: $0.003; or 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. On April 18, 2014, we received proceeds of $60,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $19,817 and $28,139, respectively, resulting in a remaining discount of $12,044 at June 30, 2015. On May 20, 2014, we received proceeds of $45,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $45,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $14,836 and $18,443, respectively, resulting in a remaining discount of $11,721 at June 30, 2015. On June 30, 2014, we received proceeds of $200,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $200,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $66,059 and $67,153, respectively, resulting in a remaining discount of $66,788 at June 30, 2015. On July 18, 2014, we received proceeds of $25,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $8,242 and $7,559, respectively, resulting in a remaining discount of $9,199 at June 30, 2015. On August 6, 2014, we received proceeds of $65,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $65,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $21,430 and $17,404, respectively, resulting in a remaining discount of $26,166 at June 30, 2015. On August 18, 2014, we received proceeds of $25,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $8,242 and $6,148, respectively, resulting in a remaining discount of $10,610 at June 30, 2015. On September 9, 2014, we received proceeds of $56,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $56,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $18,530 and $11,569, respectively, resulting in a remaining discount of $25,901 at June 30, 2015. On October 8, 2014, we received proceeds of $24,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $24,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $7,927 and $3,679, respectively, resulting in a remaining discount of $12,394 at June 30, 2015. October 2014 Securities Purchase Agreement - $500,000 On October 1, 2014, we entered into a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $500,000 (the October 2014 $500,000 SPA). The advance amounts received are at the lenders discretion. The notes are convertible into shares of our common stock at a price per share equal to the lesser of: $0.003; or 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. On October 1, 2014, we received proceeds of $65,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $65,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $21,469 and $10,794, respectively, resulting in a remaining discount of $32,737 at June 30, 2015. On November 7, 2014, we received proceeds of $30,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $9,927 and $2,962, respectively, resulting in a remaining discount of $17,111 at June 30, 2015. On December 9, 2014, we received proceeds of $25,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $4,106 and $1,004, respectively, resulting in a remaining discount of $19,890 at June 30, 2015. On January 14, 2015, we received proceeds of $92,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $92,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $28,088, resulting in a remaining discount of $63,912 at June 30, 2015. On February 10, 2015, we received proceeds of $30,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $7,678, resulting in a remaining discount of $22,322 at June 30, 2015. On March 16, 2015, we received proceeds of $30,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $5,782, resulting in a remaining discount of $24,218 at June 30, 2015. On April 17, 2015, we received proceeds of $45,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $45,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $6,066, resulting in a remaining discount of $38,934 at June 30, 2015. On May 5, 2015, we received proceeds of $65,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $65,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $6,618, resulting in a remaining discount of $58,382 at June 30, 2015. On May 11, 2015, we received proceeds of $40,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $40,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $3,636, resulting in a remaining discount of $36,364 at June 30, 2015. On June 22, 2015, we received proceeds of $35,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $35,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $510, resulting in a remaining discount of $34,490 at June 30, 2015. On June 23, 2015, we received proceeds of $20,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $20,000 related to the conversion feature of the note, along with a derivative liability at inception. During the six months ended June 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $255, resulting in a remaining discount of $19,745 at June 30, 2015. 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 June 30, 2015 are as follows: Stock price on the valuation date $0.0108 Conversion price for the debt $0.0045 - $0.0122 Dividend yield 0.00% Years to maturity 0.30 - 1.48 Risk free rate .01% - .46 % Expected volatility 113.42% - 180.29% The value of the derivative liability balance at June 30, 2015 and December 31, 2014 was $32,199,005 and $9,476,605, respectively. These assumptions are subject to significant changes and market fluctuations from period to period; therefore, the estimated fair value of the derivative liability will fluctuate from period to period and the fluctuation may be material. Based on the assumptions used to estimate the fair value of the derivative liability at June 30, 2015 and assuming all lenders convert the notes payable at the June 30, 2015 conversion prices, the Company would have insufficient authorized shares of common stock to complete the debt conversions. During the six months ended June 30, 2015, the Company had the following activity in its derivative liability account: Derivative liability at December 31, 2014 $9,476,605 Addition to liability for new debt issued 357,000 Elimination of liability on conversion (606,737) Change in fair value 22,972,137 Derivative liability at June 30, 2015 $32,199,005 The total gain on settlement of debt related to the conversion of notes payable into shares of our common stock was $5,118 for the six months ended June 30, 2015. |
