Convertible Notes | Note 5- Convertible Notes (1) Convertible notes originally due on November 27, 2015: On November 27, 2012, the Company entered into certain convertible loan agreements with four (4) investors. The Company received a total of $125,000 which bears interest at 10% per annum and is due on November 27, 2015. Interest shall accrue from the advancement date and shall be payable quarterly. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of $0.0005 per share. The Company recognized the intrinsic value of the embedded beneficial conversion feature of $125,000 as additional paid-in capital and reduced the carrying value of the convertible debenture to $nil. The carrying value will be accreted over the term of the convertible debentures up to its face value of total of $125,000. On August 1, 2014 the Company successfully amended the terms of certain convertible loan agreements with four (4) investors for a total of $125,000 due and payable on November 27, 2015. Under the amended terms, a total of $125,000 originally available for conversion into a total of 250,000,000 shares of common stock at $0.0005 per share has been amended to reflect a price of $0.005 per share for a total of 25,000,000 shares of common stock, if converted. The Company analyzed the above amendment under ASC 470-60 and concluded that the amendment to the conversion terms qualified as a substantial modification and as such the unamortized discount of $88,184 was recorded as loss on extinguishment of debt. The Company recalculated the intrinsic value of the embedded beneficial conversion feature of $125,000 this has been recorded at the discount on the convertible note. The carrying value will be accreted over the term of the convertible debentures up to its face value of total of $125,000. During August 2014, the conversion options in these notes became tainted upon the issuance of other variable rate convertible debt. Accordingly, the conversion options in these notes were accounted for as derivative liabilities. On July 16, 2015, the Company amended the terms of the certain convertible loan agreements with four investors for a total of $125,000 due and payable on April 16, 2016. Under the amended terms, a total of $125,000 convertible notes which comes due and payable on November 27, 2015 were extended to the maturity date of April 16, 2016. In addition, the notes were modified whereby they do not become convertible until maturity. The Company analyzed the conversion feature of above Convertible Notes for derivative accounting consideration under FASB ASC 470 and determined that the conversion feature did not create embedded derivatives. The Company analyzed the above amendment under ASC 470-60 and concluded that the amendment to the conversion terms qualified as a substantial modification and as such the unamortized discount of $79,103 was recorded as loss on extinguishment of debt. In addition, the fair value of the derivative liabilities associated with the pre modification conversion option in these notes of $591,496 was extinguished resulting in a gain of $591,496. The net gain on extinguishment of liabilities during the year ended December 31, 2015 resulting from this substantial modification was $512,393. The carrying value of these convertible notes is as follows: August 1, 2014 Recalculation December 31, 2014 December 31, 2015 Face value of certain convertible notes $ 125,000 $ 125,000 $ 125,000 Less: unamortized discount (125,000 ) (116,702 ) - Carrying value $ - 8,298 $ 125,000 As at December 31 2015, the carrying values of the convertible debenture and accrued convertible interest thereon were $125,000 and $12,500, respectively. Amortization of the discounts associated with these notes was $37,599 during the year ended December 31, 2015. (2) Convertible note due on August 22, 2015 (CN#1) On August 22, 2014, the Company entered into a convertible loan agreement with an investor (the “CN#1”), where under the Company has issued two 8% convertible redeemable notes in the aggregate principal amount of $250,000 with the first note being $125,000 and the second note being $125,000, convertible into shares of the Company’s common stock upon the terms. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price equal to 52% of the lowest trading price of the Common Stock as reported on the OTCQB exchange for the twelve (12) prior trading days including the day upon which a Notice of Conversion is received by the Company. On August 22, 2014, the Company received net proceeds totaling $106,250 in respect to the first of the two notes in the totaling gross amount of $125,000. Financing fees of $12,500 and legal fees of $6,250 were paid in respect of the back end note which is due and payable on August 22, 2015. On January 15, 2015 and February 26, 2015 respectively the Company received net proceeds from an investor totaling $63,750 and $42,500 in respect to the second of the two notes in the total gross amount of $125,000. Financing fees of $12,500 and legal fees of $6,250 were paid in respect of the back end note which is due and payable on August 22, 2015. The following table reflects the issuance of 17,846,932 shares in respect of Conversion Notices received for a total of $250,000 in principal and $9,570 in accrued interest from CN#1 during the year ended December 31, 2015: Conversion Date Original Principal Amount ($) Accrued interest payable ($) Conversion Price ($) Number of shares issued February 27, 2015 40,000 1,613 0.0364520 1,141,587 April 17, 2015 15,000 766 0.0239200 659,114 April 29, 2015 20,000 1,074 0.0208000 1,013,171 May 7, 2015 25,000 1,386 0.0130000 2,029,715 May 21, 2015 25,000 1,463 0.0130000 2,035,616 June 2, 2015 25,983 547 0.0141445 1,875,620 June 8, 2015 29,017 649 0.0141440 2,097,405 June 29, 2015 18,000 485 0.0145600 1,269,592 July 7, 2015 19,000 546 0.00936 2,088,197 July 20, 2015 33,000 1,041 0.00936 3,636,915 Total 250,000 9,570 17,846,932 As of December 31, 2015, the principal amount and all accrued interest payable with respect to CN#1 was paid in full with issuance of common stock. (3) Convertible note due on April 16, 2015 (CN#2) On September 17, 2014, the Company entered into a convertible loan agreement with an investor (the “CN#2). The Company received net proceeds totaling $88,000 from a note in the gross amount of $100,000 which bears interest at 10% per annum and is due on April 16, 2015. Financing fees of $10,500 and legal fees of $2,000 were paid in respect of the note which is due and payable on April 16, 2015. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of the lower of (1) a 50% discount to the average of the three lowest daily trading prices for the previous twenty (20) trading days to the date of conversion; or (2) a 50% discount to the average of the three lowest daily trading prices for the previous twenty (20) trading days before the date that this note was executed. The following table reflects the details of the issuance of 9,180,180 shares in respect of Conversion Notices received for a total of $100,000 in principal and $5,582 in accrued interest from CN#2 during the year ended December 31, 2015: Conversion Date Original Principal Amount ($) Accrued interest payable ($) Conversion Price ($) Number of shares issued March 26, 2015 6,775 - 0.0115167 588,235 April 1, 2015 50,000 - 0.0115000 4,347,826 April 22, 2015 43,225 5,582 0.0115000 4,244,119 Total 100,000 5,582 9,180,180 As of December 31, 2015, the principal amount and all accrued interest payable with respect to CN#2 was paid in full with issuance of common stock. (4) Convertible note due on January 13, 2016 (CN#3) On January 13, 2015 the Company entered into a Securities Purchase Agreement (“SPA”) with Adar Bays, LLC (“Adar”) a Florida Limited Liability company where under the Company has issued two 8% convertible redeemable notes in the aggregate principal amount of $150,000 with the first note being $75,000 and the second note being $75,000, convertible into shares of the Company’s common stock with a maturity date one year after issuance or January 13, 2016. The first of the two notes (the “First Note”) shall be paid for by Adar upon execution of the SPA, and the second note (the “Second Note”) shall initially be paid for by the issuance of an offsetting $75,000 secured note issued to the Company by Adar (“Buyer Note”), provided that prior to conversion of the Second Note, Adar must have paid off the Buyer Note in cash. Under the terms of the First Note, at any time after 180 days, the holder may elect to convert all or part of the face value of the note into shares of the Company’s common stock without restrictive legend at a price (“Conversion Price”) for each share of Common Stock equal to 52% of the lowest trading price of the Company’s common stock for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company. If the shares are not delivered in 3 business days, to the holder, the Notice of Conversion may be rescinded. Under the terms of the Second Note, the holder is entitles at its option, after the expiration of the requisite Rule 144 holding period and after full cash payment for the promissory note issued by the holder to the Company simultaneously with the issuance by the Company of this note (the “Holder Issued Note”) to convert all or part of the Note then outstanding into shares of the Company’s common stock equal to 52% of the lowest trading price of the Company’s common stock for the twelve prior trading days including the day upon which a Notice of Conversion is received by the Company. If the shares are not delivered in 3 business days, to the holder, the Notice of Conversion may be rescinded. With respect to the First and Second Notes, in the event that the Company experiences a DTC “Chill” on its shares the conversion price shall be decreased to 42% instead of 52% while the “Chill” is in effect, and in no event shall the holder be allowed to effect a conversion, if such conversion, along with other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company. Further, with respect to the Second note, in the event the Company is not “Current” in its SEC filings at the time the note is cash funded, the discount shall be decreased to 40% instead of 52%. In respect of the First and Second notes interest on any unpaid principal balance of the Notes shall be paid by the Company in common stock (the “Interest Shares”). The Holder may at any time send a Notice of Conversion for Interest Shares based on the aforementioned formula for all or part of interest payable. During the first 180 days the Company may redeem the First Note by paying to the holder an amount as follows: (i) if the redemption is in the first 90 days the note is in effect an amount equal to 125% of the unpaid principal amount of the note along with accrued interest; (ii) if the redemption is after the 91st day the note is in effect then the Company may redeem the note in an amount equal to 135% of unpaid principal and interest. The note is not redeemable after 180 days. The Second Note may not be prepaid, except that if the First Note is redeemed by the Company within 6 months of the issuance date of such note, the obligations of the Company under the Second Note will be automatically deemed satisfied and the Second Note and the Holder Note will be deemed canceled and of no further force or effect. Upon funding of each Note the Company shall pay $3,750 in legal fees and fees to Carter, Terry & Company of $7,500. On January 15, 2015 the Company received net proceeds from Adar totaling $63,750 with respect to the First Note in the total gross amount of $75,000. Financing fees of $7,500 and legal fees of $3,750 were paid. The following table reflects the details of the issuance of 18,902,736 shares in respect of Conversion Notices received for a total of $75,000 in principal and $3,934 in accrued interest from CN#3 during the year ended December 31, 2015: Conversion Date Original Principal Amount ($) Accrued interest payable ($) Conversion Price ($) Number of shares issued July 20, 2015 5,000 - 0.00936 534,188 July 23, 2015 15,000 - 0.00936 1,602,564 August 13, 2015 7,000 - 0.00832 841,346 August 27, 2015 8,000 - 0.005772 1,386,001 September 8, 2015 7,000 - 0.005252 1,332,826 September 16, 2015 10,000 - 0.0052 1,923,077 October 13, 2015 12,000 - 0.0052 2,307,692 November 6, 2015 6,000 - 0.001664 3,605,769 December 1, 2015 5,000 3,934 0.001664 5,369,273 Total 75,000 3,934 18,902,736 As of December 31, 2015, the principal amount and all accrued interest payable with respect to CN#3 was paid in full with issuance of common stock. On December 1, 2015, the Company issued 2,489,435 additional shares of common stock to the Note holder and recorded a loss on debt settlement in the amount of $16,183. (ref Note 6 below). (5) Convertible note due on January 14, 2016 (CN#4) On July 14, 2015, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $90,000 from total loan proceeds of $102,000, which bears interest at 8% per annum and is due on January 14, 2016. Financing fees of $10,000 and legal fees of $2,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of December 31, 2015, the outstanding principal balance under this note was $102,000. (6) Convertible note due on July 29, 2016 (CN#5) On July 29, 2015 the Company entered into a convertible loan agreement with an investor. The Company received new proceeds totaling $75,000 from total loan proceeds of $84,000 which bears interest at 8% per annum and is due on July 29, 2016. An original issue discount of $6,000 and legal fees of $3,000 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at 58% multiplied by the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding the applicable Conversion, provided that if at any time the lowest intra-day trade price in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.01, then in such event the then-current Conversion Factor shall be reduced by 5% for all future Conversions. As of December 31, 2015, the outstanding principal balance under this note was $84,000. (7) Convertible note due on August 3, 2016 (CN#6) On August 3, 2015, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $50,000 from total loan proceeds of $56,000, which bears interest at 8% per annum and is due on August 3, 2016. Financing fees of $3,500 and legal fees of $2,500 were paid in respect of the note. Interest shall accrue from the advancement date and shall be payable on maturity. Any portion of the loan and unpaid interest are convertible at any time at the option of the lender into shares of common stock of the Company at a conversion price of a 45% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. As of December 31, 2015, the outstanding principal balance under this note was $56,000. In our evaluation of the financing arrangement, we concluded that the conversion features were not afforded the exemption as a conventional convertible instrument and it did not otherwise meet the conditions set forth in current accounting standards for equity classification. Accordingly, they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities. (See footnote 11 for derivative disclosure) Additionally, the Company evaluated the convertible notes in note 5 (1) above and concluded that these were tainted due to the variable conversion rate of the above the convertible notes and as such they do not meet the conditions necessary to obtain equity classification and are required to be carried as derivative liabilities. They were removed from the derivative liabilities upon their substantial modification and extinguishment. (See footnote 9 for derivative disclosure) The carrying value of certain convertible notes (CN#1, CN#2 and CN#3) are as follows CN#1 CN#2 CN#3 Total Carrying value, December 31, 2013 $ - $ - $ - $ - Add: Face value of certain convertible notes 125,000 100,000 - 225,000 Less: unamortized discount (79,860 ) (48,371 ) (128,231 ) Carrying value, December 31, 2014 45,140 51,629 - 96,769 Add: Face value of certain convertible notes 125,000 - 75,000 200,000 Total Face value of certain convertible notes 250,000 100,000 75,000 425,000 Less: converted face value to shares (250,000 ) (100,000 ) (75,000 ) (425,000 ) Less: unamortized discount - - - - Carrying value, December 31, 2015 $ - - $ - - The carrying value of certain convertible notes (CN#4 CN#5 and CN#6) are as follows CN#4 CN#5 CN#6 Total Carrying value, December 31, 2014 $ - $ - $ - $ - Add: Face value of certain convertible notes 102,000 84,000 56,000 242,000 Total Face value of certain convertible notes 102,000 84,000 56,000 242,000 Less: converted face value to shares - - - - Less: unamortized discount (8,270 ) (48,426 ) (33,049 ) (89,745 ) Carrying value, December 31, 2015 $ 93,730 35,574 $ 22,951 $ 152,255 Amortization of the discount over the year ended December 31, 2015 totaled $518,085, which amount has been recorded as interest expense. The unamortized discount of $89,745 associated with above notes (CN #1 to CN#6) will be expensed in future periods. |