CONVERTIBLE NOTES PAYABLE | NOTE 5. CONVERTIBLE NOTES PAYABLE At September 30, 2015, convertible notes payable consisted of the following: Couterparty Principal Amount Unamortized Discount Carrying Value Accrued Interest Derivative Liability Interest Expense Typenex $ 368,666 $ 107,722 $ 260,944 $ 9,945 $ 734,583 $ 495,389 Redwood 596,590 353,400 243,190 38,086 1,231,399 484,687 Adar Bays 125,000 108,333 16,667 1,556 229,809 18,222 Darling Capital 105,000 87,333 17,667 1,143 192,742 18,810 JMJ Financial 154,000 129,375 24,625 2,875 273,006 27,500 JSJ Investments 112,000 93,334 18,666 2,091 283,157 20,757 LG Capital 75,000 62,500 12,500 933 137,884 13,433 Union Capital 75,000 62,500 12,500 933 137,884 13,433 Scott Hastings 30,000 - 30,000 1,010 - 6,420 Other - - - - - 59,939 $ 1,641,256 $ 1,004,497 $ 636,759 $ 58,572 $ 3,220,465 $ 1,158,590 At September 30, 2016, convertible notes payable consisted of the following: Couterparty Principal Amount Unamortized Discount Carrying Value Accrued Interest Derivative Liability Interest Expense GHS Investments $ 248,926 $ 88,075 $ 160,852 $ 124,872 $ 1,255,774 $ 1,323,000 Adar Bays 187,500 (0 ) 187,500 25,042 610,117 153,174 JMJ Financial 171,666 16,605 155,060 23,174 578,288 211,790 Union - - - - - 90,909 LG Capital - - - - - 91,017 Oddyssey Research 90,000 15,000 75,000 - 311,365 75,341 $ 698,092 $ 119,680 $ 578,412 $ 173,088 $ 2,755,544 $ 1,945,231 Typenex On December 3, 2014, the Company issued an unsecured convertible promissory note in the principal amount of $560,000 less an original issue discount (“OID”) of $50,000 and transaction expenses of $10,000 for a total purchase price of $500,000. The stated rate interest on the note was 10%, per annum, with a default rate of 22%, per annum. The Company also paid a finder’s fee in the amount of $25,000 in connection with this transaction, which was recorded as a discount to the note as it was paid from the proceeds; the Company received $475,000 net proceeds after transactions costs. The note was convertible into common stock after 180 days at a discount, subject to change, to the lowest trading price during the prior 15 days from the date of notice to convert, subject to a floor of $0.50 per share, unless certain events of default occur, which were generally outside of the control of management. There was no explicit limit on the number of shares that may be issued under the terms of the note. Accordingly, the Company recorded the ECF as a derivative liability at fair value of $441,034, a discount of $342,000 reducing the note to zero, and the excess in fair value of $99,034 to loss from effects of derivative liabilities. On August 26, 2015, the Company and holder entered into an Amendment whereby the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling holder to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the agreement. On August 13, 2015, the carrying value on the note was $342,000. The Company recorded a loss on debt extinguishment of $366,068. On December 10, 2015, the Company and the holder entered into a forbearance agreement regarding the holder’s convertible note and added $105,000 to the principal and immediately charged to interest expense. On February 26, 2016, the note was assigned to GHS. The note was fully satisfied in 2016. During the years ended September 30, 2016 and 2015, the Company converted $497,687 and zero, and $191,334 and $33,166, respectively, of principal and accrued interest into 196,418,367 shares and 3,265,987 shares, respectively. The note was fully satisfied in 2016. The note was fully satisfied in 2016. Redwood On February 10, 2015, the Company issued an unsecured convertible promissory note in the principal amount of $2,000,000 less an OID of $182,000 and transaction expenses of $10,000 for a total purchase price of $1,808,000. The stated rate interest on the note was 10%, per annum; default rate 22%, per annum. During the year ended September 30, 2015, the Company received $800,000 under the note with an original issue discount of $148,600 and transaction costs for net proceeds of $651,395. The note was convertible into common stock after 180 days at a discount, subject to change, to the lowest trading price during the prior 15 days from the date of notice to convert, subject to a floor of $0.50 per share, unless certain events of default occur, which are generally outside of the control of management. There is no explicit limit on the number of shares that may be issued under the terms of the note. Accordingly, the Company recorded the ECF as a derivative liability at fair value of $867,244, a discount of $475,000 reducing the note to zero, and the excess in fair value of $614,559 to derivative liability loss. During the year ended September 30, 2015, the Company amortized $291,872 of the discount to interest expense prior to extinguishment below. On August 13, 2015, the Company entered into an amendment whereby the conversion rate of the note was amended to 55% of the lowest price of the prior fifteen (15) trading days and conversion floor removed which amendment was triggered by the dilutive issuances of the August 2015 convertible note financing thereby entitling Investor to the lowest conversion rate granted during the year ended September 30, 2015 per the terms of the $2M Securities Purchase Agreement. On August 13, 2015, the carrying value on the note was $614,559. .The Company recorded a loss on debt extinguishment of $614,010. On February 23, 2016, the note was assigned to an investor, the same investor in the preceding section, and $36,038 was added to the principal balance and immediately charged to interest expense. During the years ended September 30, 2016 and 2015, the Company converted $632,629 and $13,814, and $203,410 and zero, respectively, of principal and accrued interest into 160,498,119 shares and 4,456,404 shares, respectively. The note was fully satisfied in 2016. Convertible Note Financings – August 2015 On August 5, 2015 through August 12, 2015, the Company entered into a series of convertible note financings with an aggregate face value of $646,000 for net proceeds of $541,000. The stated rates of interest on the notes range from 8% to 12%, per annum; one note had a one-time charge of 12% on principal. The notes are subject to default rates of interest of up to 22%, per annum. In the event of default, the principal and accrued interest increase 150%. The notes have prepayment premiums ranging from zero percent to148% at or near 180 days, together with stated rates of interest. In the event of default, the note increases 150% of the principal and accrued interest. After 180 days, the notes become convertible into common stock based on a discount of 58% of the lowest trading price over a prior 13 to 20 days, subject to further adjustment to 48% of lowest traded price under certain conditions. There is no explicit limit on the number of shares that may be issued under the terms of the note. Accordingly, the Company recorded the ECF as a derivative liability at fair value of $768,776, a discount of $628,500 reducing the note to zero, and the excess in fair value of $140,276 to derivative liability loss. . On March 7, 2016, an August 5, 2015 note with a face value of $112,000, together with accrued interest of $7,806 was assigned to a third party, or a total of $119,706. In the event the notes are not repaid at 180 days at a premium, the notes become convertible into common stock based on a discount of 45% of the lowest trading price over prior 20 days trading, subject to an additional 10% discount in certain events. In the event of default, the note increased 150% of the principal and accrued interest. There is no explicit limit on the number of shares that the note is convertible into. As of September 30, 2016, the note was fully converted. December 15, 2015 Convertible Note On December 15, 2015, an accredited investor provided the Company with $50,000 in additional proceeds under the same terms of their original convertible note with a term of two years in August 2015. A one-time interest charge of 12% and an original issue discount of 10%, aggregating $11,600, was added to the principal of the note. The total face amount of the note was $61,600 as of December 15, 2015. The note was subject to a default rate of interest of 18%, per annum. The note had default penalty of 150% principal and accrued interest. In the event the notes were not repaid at 180 days, the notes become convertible into common stock based on a discount of 60% of the lowest trading price over the 20 days prior to notice of conversion, subject to further adjustment of up to 15% in certain events. There is no explicit limit on the number of shares that the note is convertible into. The Company recorded the note as a derivative liability at fair value of $144,127, a derivative discount of $61,600, and the excess in fair value of $82,527 to Loss from Effects of Derivatives in the accompanying statement of operations. During the year ended September 30, 2016, the Company converted $119,807 principal and $1,594 of accrued interest into 48,223,268 shares of common stock. . GHS Convertible Note On April 19, 2016, the Company entered into convertible note financing transaction in the principal amount of $193,765, less fees and costs. The convertible note bears interest at the stated rate of 10%, per annum, subject to a default rate of 22%, per annum., and is convertible into common stock of the Company at any time after 180 days from issuance of the note at a conversion price per share equal to 45% of the lowest trading price in the 20 trading days immediately preceding the applicable conversion date. The conversion rate will increase to 55% from 45% in certain conditions. The Company had the option to prepay the convertible note in the first 180 days from closing subject to a prepayment penalty of 150% of principal plus interest. The maturity date of the convertible note was January 19, 2017. In the event of default, the principal and accrued interest increases by 150%. There is no explicit limit on the number of shares that the note is convertible into. The The Company recorded the prepayment penalty of $91,011 as a discount to the convertible note and fully amortized it to interest expense during the year ended September 30, 2016. Amortization of derivative discounts in the accompanying statement of operations totaling $88,075. As a result, as of September 30, 2016, $160,851 is classified as current on the accompanying consolidated balance sheet. Oddyssey Investment On December 10, 2015, the Investor purchased $90,000 in common stock at a purchase price equal to 90% of the average of the closing prices of the common stock for the three (3) trading days immediately preceding the date that is six (6) months from the date of the agreement. As of June 7, 2016, the Company entered into an agreement for proceeds of $90,000 to be recorded as a convertible note payable with a conversion feature of 55% of the lowest trading price for the prior twenty (20) days. The Company recorded the ECF in the note as a derivative liability at estimated fair value of $118,722, a derivative discount of $90,000, and the excess in fair value of $28,722 to Loss from Effects of Derivatives in the accompanying statement of operations. The following weighted average variables were used in the Black Scholes model for the derivative liabilities as of September 30, 2016 and 2015: Balance Sheet Date Stock Price at Dividend Exercise Risk Free Volatility Average September 30, 2016 $ 0.004 - % $ 0.001 0.45 % 298 % 0.5 September 30, 2015 $ 0.039 - % $ 0.015 0.08 % 146 % 1.0 |