| Note 5. CONVERTIBLE NOTES PAYABLE | Convertible
debt with a variable conversion feature consists of the following as of June 30, 2015 and December 31, 2014:
June
30, 2015 December
31, 2014
LG $ 95,000 $ 110,000
KBM - 64,000
JMJ 76,134 55,556
Tangiers 55,000
FireRock 137,500
Adar Bays 44,000
Union Capital 44,000
River North Equity 52,500
Crown Bridge Partners 115,250
Peak One 70,000
JSJ Investments 50,000
EMA Financial 75,000
SBI Investments 350,000
Total convertible
notes payable $ 1,164,384 $ 229,556
Less: debt discount (872,976 ) (223,556 )
Convertible notes
payable, net 291,408 6,000
Less: current
portion (286,588 ) (6,000 )
Long-term portion $ 4,820 $ LG On
December 15, 2014, the Company issued to LG Capital Funding, LLC ("LG") an 8% convertible promissory note in the principal
amount of $110,000 due December 15, 2015 (the "LG Note"). The LG Note was subject to an original issue discount of $15,000
resulting in net proceeds of $95,000. The LG Note is convertible by LG, at its option, any time after 180 days from the date of
issuance at a conversion price equal to 62% of the lowest closing bid price for our common stock for the twenty trading days prior
to the date upon which LG provides us with a notice of conversion. The LG Note may be prepaid by us any time within 180 days from
the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after
150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60
day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133%, and for the 121-150 day period is 139%.
The LG Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us to significant
default penalties. On
June 16, 2015, LG converted $15,000 of principal and $598 of interest into 419,310 shares of common stock. The Company recorded
a loss on debt extinguishment of $1,178 consisting of the excess of the fair value of the shares issued and the principal of the
debt settled of $10,399 and the unamortized debt discount of $7,500, partially offset by the fair value of the variable conversion
feature derivative liability settled of $16,721. KBM On
January 29, 2015 and December 19, 2014, the Company issued 8% convertible promissory notes to KBM Worldwide, Inc. ("KBM")
in the principal amounts of $48,000 and $64,000, respectively due November 2, 2015 and September 19, 2015, respectively, (the
"KBM Notes"). The Company received cash proceeds of $44,100 and $60,000 for these notes. The KBM Notes are convertible
by KBM at its option any time after 180 days from issuance at a conversion price equal to 58% of the average of the lowest three
trading prices for our common stock during the ten trading day period prior to the date on which KBM provides us with a conversion
notice. The KBM Notes may be prepaid by us any time within 180 days from the date of issuance at a premium ranging from 115% for
a prepayment within the initial 30 days to 140% for prepayment after 150 days from the date of issuance but on or prior to 180
days from the date of issuance. The prepayment premium for the 31-60 day period is 120%, for the 61-90 day period is 125%, for
the 91-120 day period is 130% and for the 121-150 day period is 135%. The KBM Notes become immediately due and payable upon the
occurrence of certain events of default and subjects us to significant default penalties. On
June 25, 2015, the KBM notes were assigned by the Company to SBI Investments. The assignment was treated as a debt extinguishment
by the Company. The Company recorded a debt extinguishment gain of $36,207 consisting of the fair value of the variable conversion
feature derivative liability settled of $78,912, partially offset by the unamortized debt discount of $42,705. JMJ On
December 15, 2014, we issued a convertible promissory note in the principal amount of $55,556 to JMJ Financial ("JMJ")
due December 15, 2016 (the "JMJ Note"). The JMJ Note was subject to an original issue discount resulting in net proceeds
of $50,000. The JMJ Note, including accrued interest due thereon, is convertible by JMJ, at its option, any time after 180 days
from the date of issuance at a conversion price equal to the lesser of $0.16 or 60% of the average of the two lowest trading prices
during the twenty trading days prior to conversion. The JMJ Note may be prepaid by us any time within 120 days from the date of
issuance without payment of interest. If we do not prepay the JMJ Note within such 120 day period, a one-time interest charge
of 12% will be applied to the principal amount. The JMJ Note becomes immediately due and payable upon certain events of default
and subjects us to significant default penalties. JMJ may provide us with additional loans on the same terms pursuant to which
JMJ would receive notes which, together with the JMJ Note, aggregate to $250,000. The JMJ Note was amended on January 16, 2015
to, among other things, remove a provision which had provided that if, at any time while the JMJ Note is outstanding, we issued
securities on more favorable terms than those contained in the JMJ Note, JMJ had the option to include the more favorable terms
in the JMJ Note. On
April 28, 2015, the Company issued JMJ a $27,778 convertible promissory note (of which $2,778 was an original issue discount).
The note is identical, in all material respects, to the existing JMJ Note. The note has a two-year term and provide for payment
of interest on the principal amount at maturity at the rate of 12% per annum. The note, including accrued interest due thereon,
is convertible by JMJ, at its option, any time after 180 days from the date of issuance at a conversion price equal to the lesser
of $0.16 or 60% of the average of the two lowest trading prices during the twenty trading days prior to conversion. On
June 16, 2015, JMJ converted $7,200 of principal into 200,000 shares of common stock. The Company recorded a loss on debt extinguishment
of $2,887 consisting of the excess of the fair value of the shares issued and the principal of the debt settled of $5,200 and
the unamortized debt discount of $7,100, partially offset by fair value of the variable conversion feature derivative liability
settled of $9,413. Tangiers On
January 23, 2015, we issued a one-year 10% convertible promissory note to Tangiers Investment Group, LLC ("Tangiers")
in the principal amount of $55,000 (the "Tangiers Note"). The Tangiers Note was subject to an original issue discount
of $5,000 resulting in net proceeds of $50,000. The Tangiers Note, including accrued interest due thereon, is convertible by Tangiers,
at its option, any time after 180 days from the date of issuance at a conversion price equal to 52% of the lowest trading price
for our common stock during the twenty trading days prior to conversion. The conversion price will be further reduced by 10% if
we are placed on "chill" status with the Depository Trust Company until such "chill" is remedied and will
be reduced by 5% if we are not Deposits and Withdrawal at Custodian eligible. The Tangiers Note may be prepaid by us within 180
days from the date of issuance at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment
after 150 days from the date of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the
31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133%, and for the 121-150 day period
is 139%. The Tangiers Note becomes immediately due and payable upon the occurrence of certain events of default and subjects us
to significant default penalties. By mutual agreement, Tangiers may provide us with additional funding on the same terms up to
an aggregate principal amount of $330,000 during the 9-month period which commenced on January 23, 2015. FireRock
On
January 6, 2015, we entered into a Securities Purchase Agreement ("SPA") with FireRock Global Opportunities Fund L.P.,
a Delaware limited partnership ("FireRock"), pursuant to which we issued a convertible promissory note in the principal
amount of $137,500 to FireRock (the "FireRock Note"). The FireRock Note was subject to an original issue discount of
$15,000 resulting in our receipt of $122,500 in net proceeds. In connection with the SPA, we also issued 250,000 shares of our
restricted common stock and a five-year warrant to purchase 500,000 shares of our common stock at an exercise price of $0.50 per
share to FireRock. The SPA and a related Registration Rights Agreement between us and FireRock, dated January 6, 2015, provide
for us to register the shares issuable upon conversion of the FireRock Note and the exercise of the warrant. We were required
to file a registration statement with respect to the shares underlying the note and warrant within 60 days of the January 6, 2015
issuance date and have such registration statement declared effective not more than 150 days following the issuance date. We filed
the registration statement on March 6, 2015. The note has a six-month term and provides for payment of interest on the principal
amount at maturity at the rate of 1% per annum. The
note, including accrued interest thereon, can be prepaid by us, in whole or in part, at any time prior to maturity, upon three
trading days prior written notice, at a premium of 135%. The premium rate also applies to any default interest which may be due
at the time of prepayment. Default interest, at the rate of 15% per annum, will become due in the event that we fail to pay principal
or interest when due on the Notes. The note is convertible at any time after issuance at the lower of (i) $0.20 per share or (ii)
60% (50% upon an Event of Default) of the volume weighted average price for our common stock during the three consecutive trading
days immediately preceding the trading day on which we receive a notice of conversion. The SPA further provides that if we complete
a registered primary public offering of our securities at any time during which the notes remains outstanding, that the note can
be converted at the closing of such offering at a conversion price equal to a 10% discount to the offering price to investors
in the offering. We are required to reserve 20,000,000 shares of our common stock to cover note conversions and register all such
shares in the registration statement. We are also required to cause our transfer agent to issue and transfer shares to the holders
of the Notes within one trading day of our receipt of a conversion notice. The failure to do so constitutes an Event of Default
under the Notes. Other Events of Default including, but are not limited to, our failure to pay principal and interest when due,
a material breach by us of any of the terms of the FireRock transaction documents, a breach of any representation or warranty
made by us in the FireRock transaction documents having a material adverse effect on the holder of the Notes, our appointment
of a receiver or trustee, our becoming bankrupt, our stock becoming delisted, our failure to comply with our reporting requirements
under the Securities Exchange Act of 1934, our cessation of operations, our dissolution or liquidation, our failure to maintain
any of our material assets, certain restatements of our financial statements, our effectuation of a reverse stock split, and certain
unvacated judgments against us involving more than $50,000. Subject to applicable cure periods, the Notes become immediately due
and payable upon the occurrence and during the continuation of Events of Default. Adar
Bays On
January 23, 2015, we issued to Adar Bays, LLC ("Adar") an 8% convertible promissory note in the principal amount of
$44,000 due January 23, 2016 (the "Adar Note"). The Adar Note was subject to an original issue discount of $6,500 resulting
in net proceeds of $37,500. The Adar Note, including accrued interest due thereon, is convertible by Adar, at its option, any
time after 180 days from the date of issuance at a conversion price equal to 62% of the lowest closing bid price for our common
stock during the twenty trading days prior to conversion. In the event that our common stock becomes subject to a DTC "chill",
the conversion price formula will be reduced from 62% to 52% while the "chill" remains in effect. The Adar Note may
be prepaid by us within 180 days from the date of issuance at a premium ranging from 115% for a prepayment within the initial
30 days to 145% for a prepayment after 150 days from the date of issuance but on or prior to 180 days from the date of issuance.
The prepayment premium for the 31-60 day period is 121%, for the 61-90 day period is 127%, for the 91-120 day period is 133% and
for the 121-150 day period is 139%. The Adar Note becomes immediately due and payable upon the occurrence of certain events of
default and subjects us to significant default penalties. Union
Capital On
March 3, 2015, we issued an 8% convertible promissory note to Union Capital, LLC ("Union") in the principal amount of
$44,000 due March 3, 2016 ("Union Note"). The Note was subject to an original issue discount resulting in net proceeds
of $38,000. The Note is convertible by Union, at its option, any time after 180 days from the date of issuance at a conversion
price equal to 62% of the lowest closing bid price for our common stock for the twenty trading days prior to the date upon which
Union provides us with a notice of conversion. The Note may be prepaid by us any time within 180 days from the date of issuance
at a premium ranging from 115% for a prepayment within the initial 30 days to 145% for a prepayment after 150 days from the date
of issuance but on or prior to 180 days from the date of issuance. The prepayment premium for the 31-60 day period is 121%, for
the 61-90 day period is 127%, for the 91-120 day period is 133%, and for the 121-150 day period is 139%. The Note becomes immediately
due and payable upon the occurrence of certain events of default and subjects us to significant default penalties. River
North Equity On
March 18, 2015, we issued to River North Equity, LLC ("River North") a 9% convertible promissory note in the principal
amount of $52,500 (the "River North Note"). The River North Note was subject to a 10% original issue discount resulting
in our receipt of $47,250 in net proceeds. The River North Note is convertible by River North, at its option, any time after 180
days from issuance at a conversion price equal to 60% of the lowest trading price for our common stock during the twenty trading
days prior to the date on which River North provides us with a conversion notice. The conversion price formula will be reduced
from 60% to 50% if we are not DWAC eligible. The River North Note contains a right of first refusal in favor of River North with
regard to certain future borrowings by us for the term of the River North Note. The River North Note may be prepaid by us any
time prior to our receipt of a conversion notice from River North in an amount equal to 105% multiplied by the sum of the then
outstanding principal amount of the River North Note plus (i) accrued and unpaid interest due on the principal amount; and (ii)
default interest and penalty payments, if any, due on the River North Note at the time of prepayment. The River North Note becomes
immediately due and payable upon the occurrence of certain events of default and subjects us to significant default penalties. VGI
On
April 8, 2015, we issued to Vires Group, Inc. ("VGI"), a 12% convertible promissory note in the principal amount of
$38,000 due January 2016(the "VGI Note"). The VGI Note is convertible by VGI, at its option, any time after 180 days
from issuance at a conversion price equal to 50% of the average of the three lowest trading prices for our common stock during
the twenty-day trading period prior to the date on which VGI provides us with a conversion notice. The VGI Note becomes immediately
due and payable upon the occurrence of certain events of default and subjects us to significant default penalties. On
May 11, 2015, the Company issued to VGI a 12% convertible promissory note in the principal amount of $10,000 due February 13,
2016 (the "Second VGI Note"). The Second VGI Note is convertible by VGI, at its option, any time after 180 days from
the date of issuance at a conversion price equal to 50% of the average of the three lowest trading prices for our common stock
during the twenty-day trading period prior to the date on which VGI provides us with a conversion notice. On
June 25, 2015, the VGI notes were assigned by the Company to SBI Investments. The assignment was treated as a debt extinguishment
by the Company. The Company recorded a debt extinguishment gain of $16,981 consisting of the fair value of the variable conversion
feature derivative liability settled of $49,533, partially offset by the unamortized debt discount of $32,552. Crown
Bridge Partners On
April 14, 2015, the Company issued to Crown Bridge Partners, LLC ("CBP") a 5% convertible promissory note in the principal
amount of $60,000 due April 2016 (the "CBP Note"). The CBP Note is convertible by CBP, at its option, any time after
180 days from issuance at a conversion price equal to 52% of the lowest trading prices for our common stock during the twenty-day
trading period prior to the date on which CBP provides us with a conversion notice. The CBP Note becomes immediately due and payable
upon the occurrence of certain events of default and subjects us to significant default penalties. On
May 22, 2015, the Company issued to CBP a 5% convertible promissory note in the principal amount of $48,500 due May 2016 (the
"CBP Note 2"). The CBP Note 2 is convertible by CBP, at its option, any time after 180 days from issuance at a conversion
price equal to 52% of the lowest trading prices for our common stock during the twenty-day trading period prior to the date on
which CBP provides us with a conversion notice. The CBP Note becomes immediately due and payable upon the occurrence of certain
events of default and subjects us to significant default penalties. On
May 26, 2015, the Company issued to CBP a convertible promissory note in the principal amount of $10,000 due May 2016 (the "CBP
Note 3"). The CBP Note 3 is convertible at CBP's option into common stock of the Company at a conversion price equal to 52%
of the lowest trading prices for our common stock during the twenty-day trading period prior to the date on which CBP provides
us with a conversion notice. The CBP Note becomes immediately due and payable upon the occurrence of certain events of default
and subjects us to significant default penalties. On
June 4, 2015, the Company issued to CBP a convertible promissory note in the principal amount of $40,000 due June 2016 (the "CBP
Note 4"). The CBP Note 4 is convertible at CBP's option into common stock of the Company at a conversion price equal to 52%
of the lowest trading prices for our common stock during the twenty-day trading period prior to the date on which CBP provides
us with a conversion notice. The CBP Note becomes immediately due and payable upon the occurrence of certain events of default
and subjects us to significant default penalties. On
various dates in May and June, 2015, CPP converted $43,250 of principal into 1,965,325 shares of common stock. The Company recorded
a loss on debt extinguishment of $23,924 consisting of the excess of the fair value of the shares issued and the principal of
the debt settled of $55,929 and the unamortized debt discount amortization of $46,092, partially offset by the fair value of the
variable conversion feature derivative liability settled of $78,097. Peak
One On
May 12, 2015, the Company issued Peak One Opportunity Fund ("Peak One") a $70,000 convertible promissory note in the
principal amount of $70,000 due May 2018. The Peak One note is convertible at Peak One's option into common stock of the Company
at a conversion price equal to 60% of the lowest bid price 20 days immediately preceding the date of conversion. Pursuant to this
agreement, the Company also issued 75,000 shares of common stock to Peak One with a fair value of $8,625 (a relative fair value
of $7,000). The relative fair value of the shares issued was recorded as debt discount and will be amortized to interest expense
over the term of the note. JSJ
Investments On
May 19, 2015, the Company issued JSJ Investments, Inc. ("JSJ") a $50,000 convertible promissory note in the principal
amount of $50,000 due February 2016. The JSJ note is convertible by JSJ, at its option, any time after 180 days from issuance
at a conversion price equal to 45% of the lowest trading prices for our common stock during the twenty-day trading period prior
to the date on which JSJ provides us with a conversion notice. EMA
Financial On
June 1, 2015, the Company issued EMA Financials, LLC ("EMA") a $75,000 10% convertible promissory note in the principal
amount of $75,000 due June 2016. The EMA note is convertible by JSJ, at its option, any time after 180 days from issuance at a
conversion price equal to the lower of the closing sale price of common stock on the principal market on the trading day immediately
preceding the closing date and 50% of the lowest trading prices for our common stock during the twenty-day trading period prior
to the date on which EMA provides us with a conversion notice. Rider
Capital On
June 15, 2015, the Company issued Rider Capital Corporation ("Rider") a $50,000 convertible promissory note in the principal
amount of $50,000 due June 2016. The Rider note is convertible by Rider, at its option, any time after 180 days from issuance
at a conversion price equal to 30% of the lowest trading prices for our common stock during the sixty-day trading period prior
to the date on which Rider provides us with a conversion notice. During
June 2015, Rider converted $50,000 of principal into 2,634,882 shares of common stock. The Company recorded a loss on debt extinguishment
of $23,836 consisting of the excess of the fair value of the shares issued and the principal of the debt settled of $63,332 and
the unamortized debt discount of $50,000, partially offset by fair value of the variable conversion feature derivative liability
settled of $89,496. SBI
Investments On
June 25, 2015, the Company issued SBI Investments LLC, 2014-1 ("SBI") a $164,631 8% convertible promissory note in the
principal amount of $164,631 due June 2016 (the "SBI Note 1"). The SBI Note 1 is convertible at SBI's option into common
stock of the Company at a conversion price equal to 50% of the lowest bid price 20 days immediately preceding the date of conversion. On
June 25, 2015, the Company issued SBI a $60,369 8% convertible promissory note in the principal amount of $60,369 due June 2016
(the "SBI Note 2"). The SBI Note 2 is convertible at SBI's option into common stock of the Company at a conversion price
equal to 50% of the lowest bid price 20 days immediately preceding the date of conversion. On
June 26, 2015, the Company issued SBI a $125,000 8% convertible promissory note in the principal amount of $125,000 due June 2016
(the "SBI Note 2"). The SBI Note 3 is convertible at SBI's option into common stock of the Company at a conversion price
equal to 50% of the lowest bid price 20 days immediately preceding the date of conversion. Debt
discount The
conversion price of the above convertible notes are based on a variable that is not an input to the fair value of a "fixed-for-fixed"
option as defined under FASB ASC Topic No. 815 - 40. The fair value of the conversion features was recognized as derivative instruments
at the issuance dates and are measured at fair value at each reporting period. Debt discount was recorded up to the purchase price
of the notes and is amortized to interest expense over the term of the notes. The fair value of the beneficial conversion feature
in excess of the principal amount allocated to the notes was expensed immediately as unrealized loss on derivative obligation. Following
is a summary of the debt discount for each of the convertible notes:
Noteholder December
31, 2014 Discount Debt Extinguishment Expense June
30, 2015
LG $ 105,200 $ - $ (7,500 ) $ (45,536 ) $ 52,164
KBM 62,800 48,000 (42,705 ) (68,095 ) -
JMJ 55,556 27,778 (7,100 ) (4,220 ) 72,014
Tangiers - 55,000 - (23,808 ) 31,192
FireRock - 126,385 - (122,195 ) 4,190
Adar Bays - 44,000 - (18,840 ) 25,160
Union Capital - 44,000 - (14,306 ) 29,694
River North Equity - 52,500 - (14,918 ) 37,582
VGI - 48,000 (32,552 ) (15,448 ) -
Crown Bridge Partners - 158,500 (46,092 ) (17,791 ) 94,617
Peak One - 70,000 - (700 ) 69,300
JSJ Investments - 50,000 - (7,609 ) 42,391
EMA Financial - 75,000 - (5,943 ) 69,057
Rider Capital - 50,000 (50,000 ) - -
SBI Investments - 350,000 - (4,385 ) 345,615
Total $ 223,556 $ 1,199,663 $ (185,949 ) $ (363,794 ) $ 872,976 |
