| CONVERTIBLE NOTES PAYABLE | NOTE 12 CONVERTIBLE NOTES
PAYABLE During the year ended 2015, we issued
three convertible promissory notes to unaffiliated third parties. The net proceeds from these transactions were are used for general
working capital purposes. During the six months ended June 30, 2016 we issued two convertible promissory note, the net proceeds
from which was used to pay the principal and accrued interest of two of the convertible notes issued during the year ended December
31, 2015. The difference between the face amount of the convertible notes and the net proceeds was recorded as deferred financing
costs on our consolidated balance sheets if such difference was the result of payments related to debt issuance costs. Any deferred
financing costs are amortized on a straight-line basis, which approximates the effective interest rate method, during the first
180 days that the convertible notes are outstanding, and this amortization is included in interest expense in our consolidated
statements of operations. The following table summarizes our convertible
promissory notes as of June 30, 2016:
Issue Date Issued To Security Maturity Date Interest Rate Default Rate Base Conversion Rate VCR Look Back Period VCR Calculated Using Principal Balance
12/9/15 Tangiers Investment Group Certain Assets 12/8/16 10 % 20 % 55 % 10 Days 3 lowest closing bids 220,000
3/30/16 Slainte Ventures Unsecured 12/30/16 12 % Mandatory Conversion N/A 10 Days 10 day average 81,978
4/06/16 Slainte Ventures Unsecured 12/30/16 12 % Mandatory Conversion N/A N/A N/A 75,0000
$ 376,978 The convertible notes, including accrued
interest payable, may be converted into shares of our common stock at the Conversion Price, as defined below, in whole, or in part,
at any time beginning 180 days after the date of issuance, at the option of the holder (the Conversion Feature). The Conversion Price is equal the Base
Conversion Rate specified in the table above multiplied by the Variable Conversion Rate (VCR) which is equal to the
average of the number of lowest trading prices or closing bid prices of our common stock (specified in the table above) during
the ten trading day period prior to the date of conversion divided by the closing price of our common stock on the day of conversion. Both of these conversion rates results
in a beneficial conversion features (BCF) recorded as unamortized convertible debt discount which is required to
be valued and amortized to interest expense over the term of the Note. We amortize our convertible debt discount on a straight-line
basis, which approximates the effective interest rate method, during the first 180 days that each convertible note is outstanding
and this amortization is included in amortization of debt discount in our consolidated statements of operations. If a convertible
note is repaid during the first 180 days, the remaining unamortized deferred financing costs and unamortized debt discount are
expensed on the date of repayment. The convertible notes are convertible
into an unlimited number of unregistered, restricted common shares (Unlimited Shares Feature). The difference between
the closing price of our common stock and the VCR is referred to as the Variable Conversion Rate Differential (VCRD).
Both the Unlimited Shares Feature and the VCRD meet the definition of an embedded derivative and together are referred to as a
compound embedded derivative liability or, hereafter, simply a derivative liability. In accordance with U.S. GAAP, our derivative
liabilities are recorded at fair value on the date of issuance and subsequently remeasured to fair value each reporting period
with any change in fair value being recognized as gain (loss) on derivative liabilities in our consolidated statement of operations. Similarly, accrued interest payable
applicable to the convertible notes is convertible into shares of our common stock, without limit, at the same Conversion Price.
The fair value of the derivative liabilities applicable to accrued interest payable is measured and recognized at each reporting
date as derivative liabilities with a corresponding charge to interest expense. As noted above, all derivative liabilities
are re-measured in subsequent reporting periods with any change in fair value being included in gain (loss) on derivative liabilities. The convertible notes also contain prepayment
options whereby we may, during the first 180 days that each note is outstanding, prepay the note by paying prepayment premiums
ranging from 10% to 40% of the principal then outstanding depending on the date of prepayment. In general, per the terms of our convertible
notes. The note holders may not make any conversions that would result in the note holder holding more than 9.99% of our issued
and outstanding common stock at any one time. At June 30, 2016, we have reserved 10.2
million shares of our authorized but unissued common stock for potential conversion of the convertible notes. Should we default on a conversion or
repayment of a convertible notes, the note, accrued interest and default penalties and fees are immediately due and payable.
The minimum default penalty amount ranges from 25% to 50% (or more, under certain circumstances) times the then outstanding principal
and unpaid interest. As of December 31, 2015, we had unamortized
deferred financing fees of $32,400 outstanding in connection with the issuance of our convertible notes. During the six months
ended June 30, 2016, we recognized $32,400 of amortization of deferred financing costs. This amount is included in interest expense
in our consolidated statements of operations. The aggregate fair value of the derivative
liabilities applicable to our convertible notes on the dates of issuance was $355,293, and was recorded as derivative liabilities
on our consolidated balance sheets. The related BCF debt discount was recorded as a reduction to our convertible notes payable
on our consolidated balance sheets. During the six months ended June 30, 2016, we recognized $266,711 of amortization related to
the convertible notes and recorded this amount as amortization of debt discount in our condensed consolidated statements of operations. Slainte Convertible Notes On March 30, 2016, we borrowed $81,978,
from Slainte Ventures and used the proceeds to repay principal and accrued interest applicable to our $59,000 convertible promissory
note dated October 6, 2015, to Vis Vires Group, Inc. The loan, together with interest at 12% per year, is payable on December 30,
2016. We can prepay the loan at any time. If the loan is repaid on or before September 30, 2016, the principal amount which is
being repaid will increase by 10%. If the loan is repaid after September 30, 2016, the principal amount which is being repaid will
increase by 15%. The amount of the principal increase may be paid with shares of our common stock. The number of shares to be issued
for such purpose will be determined by dividing the average closing price of our common stock (which in no case can be greater
than $0.45) for the ten trading days preceding the prepayment date. If the loan is not paid when due, then at any time on or before
January 10, 2017, Slainte may convert the outstanding principal and interest on the loan into shares of our common stock. The number
of shares to be issued on conversion will be determined by dividing the average closing price of our common stock (which in no
case can be greater than $0.45) for the ten trading days preceding the conversion date by the outstanding principal and interest
on the loan on the conversion date. On April 6, 2016, we borrowed $75,000,
from Slainte Ventures and used the proceeds, along with $52,500 of advances to the Company by officers and directors of the Company,
to repay principal and accrued interest applicable to our $102,000 convertible promissory note dated October 12, 2015, to SJS Investments,
Inc. The loan, together with interest at 12% per year, is payable on December 30, 2016. We can prepay the loan at any time. If
the loan is repaid on or before September 30, 2016, the principal amount which is being repaid will increase by 10%. If the loan
is repaid after September 30, 2016, the principal amount which is being repaid will increase by 15%. The amount of the principal
increase may be paid with shares of our common stock. The number of shares to be issued for such purpose will be determined by
dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the ten trading days preceding
the prepayment date. If the loan is not paid when due, then at any time on or before January 10, 2017, Slainte may convert the
outstanding principal and interest on the loan into shares of our common stock. The number of shares to be issued on conversion
will be determined by dividing the average closing price of our common stock (which in no case can be greater than $0.45) for the
ten trading days preceding the conversion date by the outstanding principal and interest on the loan on the conversion date. |
