Convertible Notes | Note 5- Convertible Notes (1) Convertible note due on August 22, 2015 On August 22, 2014, the Company entered into a convertible loan agreement with an investor (the "CN#1"), in which 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 totaling a 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 $9,570 in accrued interest from the aforementioned notes during the year ended December 31, 2015: Conversion Date Original Principal Amount ($) 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 the aforementioned convertible notes was paid in full with issuance of common stock. (2) Convertible note due on April 16, 2015 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 $5,582 in accrued interest from the aforementioned note during the year ended December 31, 2015: Conversion Date Original Principal Amount ($) 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 the aforementioned convertible notes was paid in full with issuance of common stock. (3) Convertible notes originally due on November 27, 2015: On November 27, 2012, the Company entered 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 in convertible notes which come due and payable on November 27, 2015 were first extended to mature on April 16, 2016, and then subsequently extended to mature on January 1, 2017. 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 December 31, 2016 Face value of certain convertible notes 125,000 125,000 125,000 125,000 Less: unamortized discount (125,000 ) (116,702 ) - - Carrying value - 8,298 125,000 125,000 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, and is reflected as interest expense. As at December 31, 2016, the carrying values of the convertible debenture and accrued convertible interest thereon were $125,000 and $51,165, respectively. (4) Convertible note due on January 13, 2016 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, 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. 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. As of December 31, 2015, the principal amount of 75,000 $3,934 On December 1, 2015, upon receipt of a conversion notice from one of its convertible note holders, the Company issued 2,489,435 shares of common stock to the Note holder. Subsequent to the fiscal year end the Company advised the Note holder of an error in their calculations and it was agreed the Note holder would provide additional cash proceeds of $9,000 in respect of the purchase price of the shares. As a result of the error during fiscal 2015, the Company recorded a loss on debt settlement in the amount of $16,183 in respect to this over issuance of shares. On March 8, 2016, the Company received $9,000 from the aforementioned note holder in respect of the 2,489,435 shares which amount was recorded as a recovered loss on issuance of shares for the year ended December 31, 2016. (5) Convertible note due on January 14, 2016 (CN#1) 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, 2016, the outstanding principal balance under this note was all converted to shares (December 31, 2015 -$102,000). The following table reflects the details of the issuance of 96,876,179 shares in respect of Conversion Notices received for a total of $102,000 in principal and $5,498 in accrued interest from CN#1 during the year ended December 31, 2016: Conversion Date Original Principal Amount ($) Accrued interest payable ($) Conversion Price ($) Number of shares issued January 22, 2016 19,471 - 0.00185 10,524,653 February 26, 2016 14,997 - 0.001425 10,524,653 March 7, 2016 13,507 - 0.0012833 10,524,653 March 28, 2016 12,488 - 0.00088 14,190,567 April 13, 2016 11,707 - 0.000825 14,190,567 April 29, 2016 15,639 - 0.000822 19,022,419 May 10, 2016 14,191 5,498 0.0011 17,898,667 Total 102,000 5,498 96,876,179 (6) Convertible note due on July 29, 2016 (CN#2) 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, 2016, the outstanding principal balance under this note was converted to shares (December 31, 2015 - $84,000). The following table reflects the details of the issuance of 98,107,486 shares in respect of Conversion Notices received for a total of 84,000 in principal and $4,580 in accrued interest from CN#5 during the year ended December 31, 2016: Conversion Date Original Principal Amount ($) Accrued interest payable ($) Conversion Price ($) Number of shares issued February 11, 2016 15,000 - 0.00212 7,075,472 March 7, 2016 15,000 - 0.00106 14,150,943 March 31, 2016 14,000 - 0.000795 17,610,063 April 18, 2016 22,500 - 0.000795 28,301,887 May 12, 2016 17,000 - 0.000795 21,383,648 June 23, 2016 500 4,580 0.00053 9,585,472 Total 84,000 4,580 98,107,485 (7) Convertible note due on August 3, 2016 (CN#3) 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, 2016, the outstanding principal balance under this note was converted to shares (December 31, 2015 - $56,000). The following table reflects the details of the issuance of 62,413,844 shares in respect of Conversion Notices received for a total of $56,000 in principal and $3,114 in accrued interest from CN#5 during the year ended December 31, 2016: Conversion Date Original Principal Amount ($) Accrued interest payable ($) Conversion Price ($) Number of shares issued February 8, 2016 5,000 203 0.00275 1,891,905 February 23, 2016 5,000 219 0.00165 3,163,138 March 7, 2016 5,000 233 0.0011 4,757,658 April 15, 2016 6,000 331 0.000825 7,674,420 April 19, 2016 13,000 730 0.000825 16,641,726 May 9, 2016 15,500 938 0.000825 19,924,416 May 12, 2016 6,500 398 0.000825 8,360,581 Total 56,000 3,052 62,413,844 (8) Convertible note due on January 25, 2017 (CN#4) On January 25, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $30,000 from total loan proceeds of $35,000, which bears interest at 8% per annum and is due on January 25, 2017. Financing fees of $3,000 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 52% of the lowest trading prices for the previous twelve (12) trading days to the date of conversion. As of December 31, 2016 , the balance payable on CN #4 includes $35,000 in principal from convertible notes and $2,616 in accrued interest payable. (9) Convertible note due on May 24, 2017 (CN#5) On May 20, 2016, the Company entered into a convertible loan agreement with an investor. The Company received net proceeds totaling $46,000 from total loan proceeds of $41,500, which bears interest at 8% per annum and is due on May 24, 2017. Financing fees of $2,500 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, 2016, the balance payable on CN #5 includes $46,000 in principal from convertible notes and $2,228 in accrued interest payable. (10) Convertible note due on July 13, 2017 (CN#6) On July 13, 2016 a total of $15,000 in principal and $6,031 in accrued interest payable to Andara Investments Limited (formerly known as Adam's Ale) was acquired by GW Holdings Group LLC. The Company issued a replacement note in the principal amount of $21,031 to GW on July 21, 2016 which convertible note bears interest at 8% per annum and is due on July 13, 2017. 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 52% discount to the lowest trading prices for the previous twenty (20) trading days to the date of conversion. The following table reflects the issuance of 49,290,170 shares in respect of Conversion Notices received for a total of $10,731 in principal and $137 in accrued interest during the year ended December 31, 2016: Conversion Date Original Principal Amount ($) Accrued interest payable ($) Conversion Price ($) Number of shares issued September 7, 2016 4,800 5 0.00020 24,026,301 December 13, 2016 5,931 133 0.00024 25,263,869 Total 10,731 138 49,290,170 As of December 31, 2016, the balance payable on CN #6 includes $10,300 in principal from convertible notes and $409 in accrued interest payable. 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 7 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 7 for derivative disclosure) The carrying value of certain convertible notes (CN#1, CN#2, CN#3, CN#4, CN#5 and CN#6) are as follows: CN#1 CN#2 CN#3 CN#4 CN#5 CN#6 Total Carrying value, December 31, 2015 $ 92,822 $ 30,385 $ 19,410 $ - $ - $ - $ 142,617 Face value of certain convertible notes 102,000 84,000 56,000 - - 242,000 Add: Face value of certain convertible notes - - - 35,000 46,000 21,031 102,031 Less: Face value converted to shares (102,000 ) (84,000 ) (56,000 ) - - (10,731 ) (252,731 ) Less: unamortized discount - - - (2,301 ) (18,147 ) (4,635 ) (25,083 ) Less: deferred financing costs - - - (329 ) (1,776 ) - (2,105 ) Carrying value, December 31, 2016 $ - $ - $ - $ 32,699 $ 27,853 $ 5,665 $ 64,112 Amortization of the discount over the year ended December 31, 2016 and 2015 totaled $166,693 and $518,085, respectively, and amortization of deferred financing costs over the year ended December 31, 2016 and 2015 totaled $17,033 and $47,360, respectively, which amount has been recorded as interest expense. The unamortized discount and deferred financing costs totaling of $27,188 associated with above notes (CN#4, CN#5 and CN#6) will be expensed in future periods. |