Convertible Notes Payable | 3 Months Ended |
Mar. 31, 2014 |
CONVERTIBLE NOTES PAYABLE [Abstract] | ' |
CONVERTIBLE NOTES PAYABLE | ' |
NOTE 5 - CONVERTIBLE NOTES PAYABLE |
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The Company had the following convertible notes payable outstanding as of March 31, 2014 and December 31, 2013: |
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| | March 31, | | | December 31, | |
2014 | 2013 |
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Note C-1 | | | 250,000 | | | | 250,000 | |
Dated – March 18, 2008 | | | | | | | | |
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Note C-2 | | | 200,000 | | | | 250,000 | |
Dated – August 15, 2008 | | | | | | | | |
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Note C-3 | | | 500 | | | | - | |
Dated – March 18, 2014 (Note $70,000 less Discount $69,500) | | | | | | | | |
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Note C-4 | | | 15,000 | | | | - | |
Dated – March 11, 2014 | | | | | | | | |
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Note C-5 | | | 5,000 | | | | - | |
Dated – March 26, 2014 | | | | | | | | |
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Note C-6 | | | 2,000 | | | | - | |
Dated – March 26, 2014 | | | | | | | | |
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Note C-7 | | | 9,082 | | | | 6,843 | |
Dated – November 8, 2013 (Note $37,375 less Discount $28,293) | | | | | | | | |
Total convertible notes payable | | $ | 481,582 | | | $ | 506,843 | |
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Less: current portion of convertible notes payable | | | 472,500 | | | | 500,000 | |
Long-term convertible notes payable | | $ | 9,082 | | | $ | 6,843 | |
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Note C-1: 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. |
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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. |
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If the conversion occurs at the Maturity Date or upon a Change of Control, then the conversion price shall be equal to $1,872 per share. |
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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. |
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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 $1,872. At March 31, 2014, the promissory note has not been repaid or converted. |
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Note C-2: 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. |
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The conversion price will be determined through (i) or (ii) below at the option of the Company: |
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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. |
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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. |
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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. |
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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. On January 1, 2014, the Company converted $50,000 of the principal balance for 1,700,000 shares of common stock of the Company (see also Note 7). At March 31, 2014, principal balance of $200,000 has not been repaid or converted. |
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Note C-3: On March 18, 2014 the Company entered into a convertible promissory note agreement with a face value of $70,000 (the “Principal Amount”), which includes $62,960 advanced by the Holder, and original issuer discount of $7,040. Pursuant to the agreement, the note bears no interest. The principal balance is due and payable on June 18, 2014. The principal amount shall be converted into shares of common stock of the Company at a fixed conversion price of $0.0001 (subject to a reset provision to $0.00001 upon certain conditions) at the option of the Holder, in whole at any time after the maturity date. The Holder shall effect conversions by delivering the company the form of Notice of Conversion. |
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Pursuant to ASC 470-20, “Debt with Conversion and Other Options,” the Company measured the contingent beneficial conversion feature at the issuance date as the convertible note is convertible upon the occurrence of a contingent future event. However, it is not reflected in the statement of comprehensive loss until the occurrence of the contingent event. At March 31, 2014 this note has not been converted or repaid. |
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Note C-4: On March 11, 2014, the Company entered into a convertible promissory note agreement for $15,000. The convertible promissory note, which was due on April 1, 2014, bears interest at the rate of 0% per annum. Pursuant to the agreement, the holder of the note has the right to convert upon written notice to the Company after the maturity date the principal then due under the note, into the Company’s common stock at a conversion price of $0.10. |
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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. At March 31, 2014, this note has not been converted or repaid. |
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Note C-5: On March 26, 2014, the Company entered into a convertible promissory note agreement for $5,000. The convertible promissory note, which is due on June 26, 2014, bears interest at the rate of 0% per annum. Pursuant to the agreement, the holder of the note has the right to convert upon written notice to the Company after the maturity date the principal then due under the note into the Company’s common stock at a conversion price of $0.10. |
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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. At March 31, 2014, this note has not been converted or repaid. |
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Note C-6: On March 26, 2014, the Company entered into a convertible promissory note agreement for $2,000. The convertible promissory note, which is due on June 26, 2014, bears interest at the rate of 0% per annum. Pursuant to the agreement, the holder of the note has the right to convert upon written notice to the Company after the maturity date the principal then due under the note into the Company’s common stock at a conversion price of $0.10. |
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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. At March 31, 2014, this note has not been converted or repaid. |
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Note C-7: On November 8, 2013, the Company entered into a convertible promissory note with a face value of $37,375 (the “Principal Amount”), which includes $30,000 advanced by the Holder, $2,500 in expenses incurred by the Holder and original issue discount of $4,875. The Principal Amount outstanding shall be due and payable on the date that is 18 months from the Issuance Date. In addition, pursuant to the convertible promissory note the Company issued 297 common stock purchase warrants. Each warrant is exercisable into one common share at a price of $126 per share for a period of five years. |
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At any time after the Issuance Date, this Note shall be convertible (in whole or in part), at the option of the Holder (the “Conversion Option”), into such number of fully paid and non-assessable shares of Common Stock (the “Conversion Rate”) as is determined by dividing that portion of the outstanding principal balance under this Note as of such date that the Holder elects to convert by the Conversion Price. The term “Conversion Price” shall mean a 40% discount of the lowest reported sale price of the common stock for the 20 trading days immediately prior to (i) the date of the Purchase Agreement, or (ii) the Voluntary Conversion Date. At March 31, 2014 this note has not been converted or repaid. |
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During the three-month period ended March 31, 2014, the Company recognized in aggregate of $14,455 (2013-$0) in interest expense for the convertible notes. |