Convertible Notes Payable | 9 Months Ended |
Sep. 30, 2013 |
CONVERTIBLE NOTES PAYABLE [Abstract] | ' |
CONVERTIBLE NOTES PAYABLE | ' |
NOTE 6 - CONVERTIBLE NOTES PAYABLE |
|
The Company had the following convertible notes payable outstanding as of September 30, 2013 and December 31, 2012: |
|
| | Sept. 30, | | | December 31, | |
2013 | 2012 |
| | | | | | |
Note C-1 | | $ | - | | | $ | 20,000 | |
Dated – February 4, 2008 | | | | | | | | |
| | | | | | | | |
Note C-1 | | | - | | | | 20,000 | |
Dated - February 4, 2008 | | | | | | | | |
| | | | | | | | |
Note C-1 | | | - | | | | 27,000 | |
Dated - February 4, 2008 | | | | | | | | |
| | | | | | | | |
Note C-1 | | | - | | | | 21,000 | |
Dated - February 4, 2008 | | | | | | | | |
| | | | | | | | |
Note C-2 | | | - | | | | 20,000 | |
Dated – February 15, 2008 | | | | | | | | |
| | | | | | | | |
Note C-3 | | | 250,000 | | | | 250,000 | |
Dated – March 18, 2008 | | | | | | | | |
| | | | | | | | |
Note C-4 | | | 250,000 | | | | 250,000 | |
Dated – August 15, 2008 | | | | | | | | |
| | | | | | | | |
Note C-5 | | | - | | | | 20,000 | |
Dated – August 31, 2011 | | | | | | | | |
Total notes payable | | $ | 500,000 | | | $ | 628,000 | |
| | | - | | | | - | |
Less: current portion | | | 500,000 | | | | 608,000 | |
Long-term portion | | $ | - | | | $ | 20,000 | |
|
Notes C-1: On February 4, 2008, the Company entered into four convertible promissory note agreements for a total of $88,000. Pursuant to the agreements, the notes bear interest at 8% per annum. The principal balance and all accrued interest was due and payable on February 4, 2011 (the “Maturity Date”) provided that the note holder has given notice to the Company on or after August 4, 2008, but prior to the Maturity Date, demanding full payment of the note as of the Maturity Date. The principal amount and accrued interest shall be converted into shares of common stock of the Company upon the first occurrence of any one of the following events: (i) If the Company has not received a Payoff Notice and no event of default has occurred as of the Maturity Date; (ii) the final closing date of a minimum of $500,000 financing (the“Next Financing Closing”) which results in the Company receiving new capital investment in exchange for the issuance by the Company of a capital interest in the Company; and (iii) immediately prior to the occurrence of any of the following (“Change of Control”): when (1) the Company sells, conveys, or otherwise disposes of all or substantially all of its property or business; or (2) when the Company causes to be registered and sold any of its shares of common stock pursuant to and under a registration statement prepared and filed in compliance with the Federal Securities Act of 1933; or (3) when the Company effects any transaction which results in one or more stockholders who were not stockholders of the Company immediately prior to such transaction owning more than eighty percent (80%) of the voting rights of the Company. The Company shall provide a written notice to the note holder of the occurrence of any such conversion event (“Conversion Notice”). |
|
If conversion occurs at the Next Financing Closing, then the note is convertible into the same type, series, and class of securities issued under the Next Financing Closing. The conversion price shall equal to conversion amount divided by the average price per share received by the Company at the Next Financing Closing, multiplied by 95% if the Next Financing Closing occurs on or before August 4, 2008, 90% if the Next Financing Closing occurs after August 4, 2008 but on or before August 4, 2009, 85% if the Next Financing Closing occurs after August 4, 2008 but on or before February 4, 2010, or 80% if the Next Financing Closing occurs after February 4, 2010. |
|
If the conversion occurs at the Maturity Date or upon a Change of Control, then the conversion price shall be equal to $9.36 per share. |
|
Pursuant to ASC 470-20, “Debt with Conversion and Other Options,” the Company did not allocate any proceeds to the conversion feature at issuance as the value of the conversion feature should not be recognized until the contingency event occurs. The Company also evaluated the conversion feature under ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity,” and determined that the conversion feature did not meet the criteria necessary for derivative treatment. |
|
As of the Maturity Date, the Company has not received new capital investment of a minimum of $500,000 or a Payoff Notice from the note holders. Pursuant to the terms of the agreement, the principal amounts and accrued interest were then convertible into common stock of the Company. The Company determined that there was no beneficial conversion feature as the fair value of common stock of the Company is below the conversion price of $9.36. |
|
On July 13, 2013, the Company agreed to convert the principal balance of $88,000 and $38,584 of accrued interest into 412,501 (2,063 post-split) shares of common stock of the Company at $0.3069 per share. |
|
Note C-2: On February 15, 2008, the Company entered into a convertible promissory note agreement for $20,000. Pursuant to the agreement, the note bears interest at 8% per annum. The principal balance and all accrued interest was due and payable on February 15, 2011 (the “Maturity Date”) provided that the note holder has given notice to the Company on or after August 15, 2008, but prior to the Maturity Date, demanding full payment of the note as of the Maturity Date. The principal amount and accrued interest shall be converted into common stock of the Company upon the first occurrence of any one of the following events: (i) If the Company has not received a Payoff Notice and no event of default has occurred as of the Maturity Date; (ii) the final closing date of a minimum of $500,000 financing (the “Next Financing Closing”) which results in the Company receiving new capital investment in exchange for the issuance by the Company of a capital interest in the Company; and (iii) immediately prior to the occurrence of any of the following (“Change of Control”): when (1) the Company sells, conveys, or otherwise disposes of all or substantially all of its property or business; or (2) when the Company causes to be registered and sold any of its shares of common stock pursuant to and under a registration statement prepared and filed in compliance with the Federal Securities Act of 1933; or (3) when the Company effects any transaction which results in one or more stockholders who were not stockholders of the Company immediately prior to such transaction owning more than eighty percent (80%) of the voting rights of the Company. The Company shall provide a written notice to the note holder of the occurrence of any such conversion event (“Conversion Notice”). |
|
If conversion occurs at the Next Financing Closing, then the note is convertible into the same type, series, and class of securities issued under the Next Financing Closing. The conversion price shall equal to conversion amount divided by the average price per share received by the Company at the Next Financing Closing, multiplied by 95% if the Next Financing Closing occurs on or before August 15, 2008, 90% if the Next Financing Closing occurs after August 15, 2008 but on or before August 15, 2009, 85% if the Next Financing Closing occurs after August 15, 2008 but on or before February 15, 2010, or 80% if the Next Financing Closing occurs after February 15, 2010. |
|
If the conversion occurs at the Maturity Date or upon a Change of Control, then the conversion price shall be equal to $9.36 per share. |
|
Pursuant to ASC 470-20, “Debt with Conversion and Other Options,” the Company did not allocate any proceeds to the conversion feature at issuance as the value of the conversion feature should not be recognized until the contingency event occurs. The Company also evaluated the conversion feature under ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity,” and determined that the conversion feature did not meet the criteria necessary for derivative treatment. |
|
As of the Maturity Date, the Company has not received new capital investment of a minimum of $500,000 or a Payoff Notice from the note holder. Pursuant to the terms of the agreement, the principal amount and accrued interest was then convertible into shares of common stock of the Company. The Company determined that there was no beneficial conversion feature as the fair value of common stock of the Company is below the conversion price of $9.36. |
|
On July 13, 2013, the Company agreed to convert the principal balance of $20,000 and $2,298 of accrued interest into 93,750 (468 post-split) shares of common stock of the Company at $0.2378 per share. |
|
Note C-3: On March 18, 2008, the Company entered into a convertible promissory note agreement for $250,000. Pursuant to the agreement, the note bears interest at 8% per annum. The principal balance and all accrued interest was due and payable on March 18, 2011 (the “Maturity Date”) provided that the note holder has given written notice to the Company on or after September 18, 2010, but prior to the Maturity Date, demanding full payment of this note as of the Maturity Date (the “Payoff Notice”). The principal amount and accrued interest shall be converted into common stock of the Company upon the first to occur of the following events and the Company shall provide a written notice to the note holder of the occurrence of any such conversion event (“Conversion Notice”): (i) If the Company has not received a Payoff Notice and no event of default has occurred as of the Maturity Date; (ii) the final closing date of a minimum of $500,000 financing (the “Next Financing Closing”) which results in the Company receiving new capital investment in exchange for the issuance by the Company of a capital interest in the Company; and (iii) immediately prior to the occurrence of any of the following (“Change of Control”): when (1) the Company sells, conveys, or otherwise disposes of all or substantially all of its property or business; or (2) when the Company causes to be registered and sold any of its shares of common stock pursuant to and under a registration statement prepared and filed in compliance with the Federal Securities Act of 1933; or (3) when the Company effects any transaction which results in one or more stockholders who were not stockholders of the Company immediately prior to such transaction owning more than sixty-five percent (65%) of the voting rights of the Company. |
|
If conversion occurs at the Next Financing Closing, then the note is convertible into the same type, series, and class of securities issued under the Next Financing Closing. The conversion price shall equal to conversion amount divided by the average price per share received by the Company at the Next Financing Closing, multiplied by 95% if the Next Financing Closing occurs on or before September 18, 2008, 90% if the Next Financing Closing occurs after September 18, 2008 but on or before September 18, 2009, 85% if the Next Financing Closing occurs after September 18, 2009 but on or before March 18, 2010, or 80% if the Next Financing Closing occurs after March 18, 2010. |
|
If the conversion occurs at the Maturity Date or upon a Change of Control, then the conversion price shall be equal to $9.36 ($1,872 post-split) per share. |
|
Pursuant to ASC 470-20, “Debt with Conversion and Other Options,” the Company did not allocate any proceeds to the conversion feature at issuance as the value of the conversion feature should not be recognized until the contingency event occurs. The Company also evaluated the conversion feature under ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity,” and determined that the conversion feature did not meet the criteria necessary for derivative treatment. |
|
As of the Maturity Date, the Company has not received new capital investment of a minimum of $500,000 or a Payoff Notice from the note holder. Pursuant to the terms of the agreement, the principal amount and accrued interest was then convertible into common stock of the Company. The Company determined that there was no beneficial conversion feature as the fair value of common stock of the Company is below the conversion price of $9.36 ($1,872 post-split) per share. At September 30, 2013, the promissory note has not been repaid or converted. |
|
Note C-4: On August 15, 2008, the Company entered into a secured convertible promissory note agreement for $250,000. The convertible promissory note, which was due on September 1, 2010, bears interest at the rate of 9% per annum. In the event the note is not repaid or converted on or prior to September 1, 2010 or after an event of default, the rate of interest applicable to the unpaid principal amount shall increase to 15% per annum. Pursuant to the agreement, the holder of the note has the right to convert upon written notice to the Company the principal then due under the note on the following terms: (i) automatically into the Company’s next issued series of preferred stock for not less than $1,500,000 at the per share price. Interest will either be paid or converted at the option of the holder; or (ii) in the event that the conversion in (i) does not occur by August 30, 2010, then the holder will have the option of converting the note into the requisite number of units of the Company’s preferred stock. The conversion price will be determined by the Company immediately prior to the time of conversion. |
|
The conversion price will be determined through (i) or (ii) below at the option of the Company: |
|
i). The per share value of each share of preferred stock will equal to the result of the following formula: (1) six times the average earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the Company for the 2008 and 2009 fiscal years, divided by the product of (1) by the number of preferred stock issued and outstanding. |
|
ii). The fair market value of each share of preferred stock as of August 30, 2010. The fair market value of the preferred stock shall be determined by a qualified appraiser jointly selected by the Company and the note holder. |
|
Pursuant to ASC 470-20, “Debt with Conversion and Other Options,” the Company did not allocate any proceeds to the conversion feature at issuance as the value of the conversion feature should not be recognized until the contingency event occurs. The Company also evaluated the conversion feature under ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity,” and determined that the conversion feature did not meet the criteria necessary for derivative treatment. |
|
As of August 30, 2010, the Company had not completed a financing of a minimum of $1,500,000 and the note holder did not contact the Company to determine the fair market value of the preferred stock or demand payment. At September 30, 2013, the promissory note has not been repaid or converted. |
|
Note C-5: On August 31, 2011, the Company entered into a convertible promissory note agreement for $20,000. Pursuant to the agreement, the note bears interest at 6% per annum. The principal balance and all accrued interest is due and payable on August 31, 2014 (the “Maturity Date”) provided that the note holder has given notice to the Company on or after February 28, 2014, but prior to the Maturity Date, demanding full payment of the note as of the Maturity Date. The principal amount and accrued interest shall be converted into shares of common stock of the Company upon the first occurrence of any one of the following events: (i) If the Company has not received a Payoff Notice and no event of default has occurred as of the Maturity Date; (ii) the final closing date of a minimum of $500,000 financing (the “Next Financing Closing”) which results in the Company receiving new capital investment in exchange for the issuance by the Company of a capital interest in the Company; and (iii) immediately prior to the occurrence of any of the following (“Change of Control”): when (1) the Company sells, conveys, or otherwise disposes of all or substantially all of its property or business; or (2) when the Company causes to be registered and sold any of its shares of common stock pursuant to and under a registration statement prepared and filed in compliance with the Federal Securities Act of 1933; or (3) when the Company effects any transaction which results in one or more stockholders who were not stockholders of the Company immediately prior to such transaction owning more than eighty percent (80%) of the voting rights of the Company. The Company shall provide a written notice to the note holder of the occurrence of any such conversion event (“Conversion Notice”). |
|
If conversion occurs at the Next Financing Closing, then the note is convertible into the same type, series, and class of securities issued under the Next Financing Closing. The conversion price shall equal to conversion amount divided by the average price per share received by the Company at the Next Financing Closing, multiplied by 95% if the Next Financing Closing occurs on or before February 29, 2012, 90% if the Next Financing Closing occurs after February 29, 2012 but on or before February 28, 2013, 85% if the Next Financing Closing occurs after February 28, 2013 but on or before August 31, 2013, or 80% if the Next Financing Closing occurs after August 31, 2013. |
|
If the conversion occurs at the Maturity Date or upon a Change of Control, then the conversion price shall be equal to $9.36 ($1,872 post-split) per share. |
|
Pursuant to ASC 470-20, “Debt with Conversion and Other Options,” the Company did not allocate any proceeds to the conversion feature at issuance as the value of the conversion feature should not be recognized until the contingency event occurs. The Company also evaluated the conversion feature under ASC 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity,” and determined that the conversion feature did not meet the criteria necessary for derivative treatment. |
|
On July 13, 2013, the Company agreed to convert the principal balance of $20,000 and $8,780 of accrued interest into 93,750 (469 post-split) shares of common stock of the Company at $0.3070 per share. |
|
During the nine-months ended September 30, 2013, the Company recognized in aggregate of $45,715 (2012-$59,117) in interest expense for the convertible notes. |