| 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 nine months ended September 30, 2015, a total of $29,200 principal and $6,940 accrued interest were converted into shares of our common stock, resulting in a principal balance of $203,812 payable at September 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 September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $29,890 and $28,139, respectively, resulting in a remaining discount of $1,971 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $22,377 and $18,443, respectively, resulting in a remaining discount of $4,180 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $99,635 and $67,153, respectively, resulting in a remaining discount of $33,212 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $12,432 and $7,559, respectively, resulting in a remaining discount of $5,009 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $32,323 and $17,404, respectively, resulting in a remaining discount of $15,273 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $12,431 and $6,148, respectively, resulting in a remaining discount of $6,421 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $27,949 and $11,569, respectively, resulting in a remaining discount of $16,482 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $11,956 and $3,679, respectively, resulting in a remaining discount of $8,365 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $32,381 and $10,794, respectively, resulting in a remaining discount of $21,825 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $14,972 and $2,962, respectively, resulting in a remaining discount of $12,066 at September 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 nine months ended September 30, 2015 and the year ended December 31, 2014, amortization of debt discount was recorded to interest expense in the amount of $12,454 and $1,004, respectively, resulting in a remaining discount of $11,542 at September 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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $43,561, resulting in a remaining discount of $48,439 at September 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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $12,724, resulting in a remaining discount of $17,276 at September 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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $10,800, resulting in a remaining discount of $19,200 at September 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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $13,607, resulting in a remaining discount of $31,393 at September 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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $17,491, resulting in a remaining discount of $47,509 at September 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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $10,327, resulting in a remaining discount of $29,673 at September 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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $6,375, resulting in a remaining discount of $28,625 at September 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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $3,607, resulting in a remaining discount of $16,393 at September 30, 2015. On July 9, 2015, we received proceeds of $23,000 pursuant to the October 2014 $500,000 SPA. We recorded a debt discount of $23,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $3,471, resulting in a remaining discount of $19,529 at September 30, 2015. July 2015 Securities Purchase Agreement - $500,000 On July 13, 2015, we entered into a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $500,000 (the July 2015 $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 July 13, 2015, we received proceeds of $12,000 pursuant to the July 2015 $500,000 SPA. We recorded a debt discount of $12,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $1,724, resulting in a remaining discount of $10,276 at September 30, 2015. On August 7, 2015, we received proceeds of $65,000 pursuant to the July 2015 $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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $6,382, resulting in a remaining discount of $58,618 at September 30, 2015. On September 10, 2015, we received proceeds of $25,000 pursuant to the July 2015 $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 nine months ended September 30, 2015, amortization of debt discount was recorded to interest expense in the amount of $914, resulting in a remaining discount of $24,086 at September 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 September 30, 2015 are as follows: Stock price on the valuation date $0.0048 Conversion price for the debt $0.0045 - $0.0122 Dividend yield 0.00% Years to maturity 1.00 - 1.44 Risk free rate .33% - .49% Expected volatility 107.51% - 168.65% The value of the derivative liability balance at September 30, 2015 and December 31, 2014 was $15,146,829 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 September 30, 2015 and assuming all lenders convert the notes payable at the September 30, 2015 conversion prices, the Company would have insufficient authorized shares of common stock to complete the debt conversions. During the nine months ended September 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 482,000 Elimination of liability on conversion (691,907) Change in fair value 5,880,131 Derivative liability at September 30, 2015 $15,146,829 The total gain on settlement of debt related to the conversion of notes payable into shares of our common stock was $5,660 for the nine months ended September 30, 2015. |
