| Note 6. Convertible Note Payable | Convertible notes payable consist of the following
at June 30, 2016 and December 31, 2015, respectively:
June 30, December 31,
2016 2015
On May 27, 2016, the Company received net proceeds of $85,000 in exchange for a 10% interest bearing; unsecured convertible promissory note with a face value of $105,000 ("Sixth Redwood Note"), which matures on February 27, 2017. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of (i) 60% of the lowest traded price over the 15 days prior to conversion or (ii) a fixed $0.00005 per share. The note carries liquidated damages of $1,000 per day for failure to provide certificates, and compensation for Buy-In on failure to timely deliver certificates. Principal and interest is due upon default at 50% of the lowest traded price over the previous fifteen (15) days, and an additional interest rate equal to the lesser of 2% per month (24% per annum) or the maximum rate per applicable law. $ 105,000 $ -
On March 11, 2016, the Company received net proceeds of $90,000 in exchange for a 10% interest bearing; unsecured convertible promissory note with a face value of $105,000 ("Fifth Redwood Note"), which matures on December 11, 2016. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of (i) 60% of the lowest traded price over the 15 days prior to conversion or (ii) a fixed $0.00005 per share. The note carries liquidated damages of $1,000 per day for failure to provide certificates, and compensation for Buy-In on failure to timely deliver certificates. Principal and interest is due upon default at 50% of the lowest traded price over the previous fifteen (15) days, and an additional interest rate equal to the lesser of 2% per month (24% per annum) or the maximum rate per applicable law. 105,000 -
On March 7, 2016, the Company received net proceeds of $67,500 in exchange for a 10% interest bearing; unsecured convertible promissory note with a face value of $78,750 ("Fourth Redwood Note"), which matures on December 7, 2016. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of (i) 60% of the lowest traded price over the 15 days prior to conversion or (ii) a fixed $0.00005 per share. The note carries liquidated damages of $1,000 per day for failure to provide certificates, and compensation for Buy-In on failure to timely deliver certificates. Principal and interest is due upon default at 50% of the lowest traded price over the previous fifteen (15) days, and an additional interest rate equal to the lesser of 2% per month (24% per annum) or the maximum rate per applicable law. 78,750 -
On February 24, 2016, the Company received net proceeds of $67,500 in exchange for a 10% interest bearing; unsecured convertible promissory note dated February 22, 2016 with a face value of $78,750 ("Third Redwood Note"), which matures on November 22, 2016. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of (i) 60% of the lowest traded price over the 15 days prior to conversion or (ii) a fixed $0.00005 per share. The note carries liquidated damages of $1,000 per day for failure to provide certificates, and compensation for Buy-In on failure to timely deliver certificates. Principal and interest is due upon default at 50% of the lowest traded price over the previous fifteen (15) days, and an additional interest rate equal to the lesser of 2% per month (24% per annum) or the maximum rate per applicable law. 78,750 -
On January 8, 2016, the Company received net proceeds of $107,500 in exchange for a 10% interest bearing; unsecured convertible promissory note with a face value of $131,250 ("Second Redwood Note"), which matures on October 8, 2016. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of (i) 60% of the lowest traded price over the 15 days prior to conversion or (ii) a fixed $0.00005 per share. The note carries liquidated damages of $1,000 per day for failure to provide certificates, and compensation for Buy-In on failure to timely deliver certificates. Principal and interest is due upon default at 50% of the lowest traded price over the previous fifteen (15) days, and an additional interest rate equal to the lesser of 2% per month (24% per annum) or the maximum rate per applicable law. 131,250 -
On December 28, 2015, the Company received net proceeds of $130,000 in exchange for a 10% interest bearing; unsecured convertible promissory note dated December 28, 2015 with a face value of $157,500 ("First Redwood Note"), which matures on September 28, 2016. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of (i) 60% of the lowest traded price over the 15 days prior to conversion or (ii) a fixed $0.00005 per share. The note carries liquidated damages of $1,000 per day for failure to provide certificates, and compensation for Buy-In on failure to timely deliver certificates. Principal and interest is due upon default at 50% of the lowest traded price over the previous fifteen (15) days, and an additional interest rate equal to the lesser of 2% per month (24% per annum) or the maximum rate per applicable law. A total of $138,116 of principal was converted into an aggregate of 24,575,000 shares of common stock at various dates between April 6, 2016 and June 28, 2016. 19,384 157,500
On December 15, 2015, the Company received net proceeds of $25,000 in exchange for a non-interest bearing, unsecured convertible promissory note with a face value of $27,500 ("Second JMJ Note"), which matures on December 15, 2016, as part of a larger financing agreement that enables the Company to draw total proceeds of $250,000 at the discretion of the lender. The principal and interest was convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of sixty percent (60%) of the lowest trading price of the Company's common stock over the twenty five (25) trading days prior to the conversion request date, or a fixed rate of $0.00005 per share, as amended within the original promissory note on September 8, 2015 (In the case that conversion shares are not deliverable by DWAC an additional 10% discount will apply; and if the shares are ineligible for deposit into the DTC system and only eligible for Xclearing deposit an additional 5% discount shall apply; in the case of both an additional cumulative 15% discount shall apply). The note carries a one-time twelve percent (12%) of principal interest charge in the event of default, and the debt holder is limited to owning 4.99% of the Company's issued and outstanding shares. The promissory note carried a $2,500 Original Issue Discount that was being amortized over the life of the loan on the straight line method, which approximates the effective interest method. The Company reserved at least 24 million shares of common stock for potential conversions. The note was paid in full on March 4, 2016 out of the proceeds from the Redwood Notes. - 27,500
On September 21, 2015, the Company received net proceeds of $45,000 in exchange for an 8% interest bearing; unsecured convertible promissory note dated September 3, 2015 with a face value of $48,000 ("First Vis Vires Note"), which matures on June 8, 2016. The principal and interest was convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of fifty eight percent (58%) of the average of the three (3) lowest closing bid prices over the 10 days prior to conversion, or a fixed rate of $0.00001 per share. The note included various prepayment penalties ranging from 112% through 130%, and default provisions of 150% of the then outstanding principal and interest, and an interest rate of 22% thereafter. The debt holder was limited to owning 4.99% of the Company's issued and outstanding shares. The Company must at all times reserve at least 20,250,000 shares of common stock for potential conversions. The note was paid in full on January 19, 2016 out of the proceeds from the Redwood Notes. - 48,000
On September 2, 2015, the Company received net proceeds of $50,000 in exchange for a non-interest bearing, unsecured convertible promissory note with a face value of $55,000 ("First JMJ Note"), which matures on September 1, 2016, as part of a larger financing agreement that enables the Company to draw total proceeds of $250,000 at the discretion of the lender. The principal and interest is convertible into shares of common stock at the discretion of the note holder at a price equal to the greater of sixty percent (60%) of the lowest trading price of the Company's common stock over the twenty five (25) trading days prior to the conversion request date, or a fixed rate of $0.00005 per share, as amended within the original promissory note on September 8, 2015 (In the case that conversion shares are not deliverable by DWAC an additional 10% discount will apply; and if the shares are ineligible for deposit into the DTC system and only eligible for Xclearing deposit an additional 5% discount shall apply; in the case of both an additional cumulative 15% discount shall apply). The note carries a one-time twelve percent (12%) of principal interest charge in the event of default, and the debt holder is limited to owning 4.99% of the Company's issued and outstanding shares. The promissory note carries a $5,000 Original Issue Discount that is being amortized over the life of the loan on the straight line method, which approximates the effective interest method. The Company reserved at least 24 million shares of common stock for potential conversions. A total of $62,222, consisting of $55,000 of principal and $7,222 of interest, was converted into an aggregate of 12,359,944 shares of common stock at various dates between March 2, 2016 and April 19, 2016. - 55,000
Total convertible notes payable 518,134 288,000
Less unamortized debt discounts:
Discounts on beneficial conversion feature 256,679 210,230
Original issue discounts 16,267 13,164
Loan origination discounts 34,640 21,951
Convertible notes payable 210,548 42,655
Less: current portion 210,548 42,655
Convertible notes payable, less current portion $ - $ - The Company recognized interest expense for
the six months ended June 30, 2016 and 2015, respectively, as follows:
June 30, June 30,
2016 2015
Interest on convertible notes $ 35,048 $ 8,175
Interest on related party loans 1,200 -
Amortization of beneficial conversion feature 317,771 44,979
Amortization of OID 20,647 7,338
Amortization of loan origination costs 44,811 4,905
Amortization of warrants - 25,181
Total interest expense $ 419,477 $ 90,578 In addition, the Company recognized and measured
the embedded beneficial conversion feature present in the convertible debts by allocating a portion of the proceeds equal to the
intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment
date using the effective conversion price of the convertible debt. This intrinsic value is limited to the portion of the proceeds
allocated to the convertible debt. The aforementioned accounting treatment resulted
in debt discounts equal to $445,470 and $346,798 during the six months ended June 30, 2016 and the year ended December 31, 2015,
respectively. The discount, consisting of Beneficial Conversion Feature Discounts of $364,220 and $297,011, Original Issue Discounts
of $23,750 and $21,037 and Loan Origination Cost Discounts of $57,500 and $28,750 during the six months ended June 30, 2016 and
the year ended December 31, 2015, respectively, is amortized on a straight line basis from the dates of issuance until the earlier
of the stated redemption date of the debts, as noted above or the actual settlement date. During the six months ended June 30,
2016 and 2015, the Company recorded debt amortization expense in the amount of $383,229 and $75,065, respectively, attributed to
the aforementioned debt discounts. The convertible notes, consisting of total
original face values of $656,250 from Redwood Fund III Ltd. on the six aggregate notes, $48,000 from Vis Vires Group, Inc., $27,500
and $55,000 from JMJ Financial, $44,100 from Adar Bays, LLC, $82,687 from LG Capital Funding, LLC, and $86,500 from Typenex Co-Investment,
LLC that created the beneficial conversion features carried a default provision that placed a "maximum share amount"
on the note holder that can be owned as a result of the conversions to common stock by the note holder of 4.99% of the issued and
outstanding shares of the Company. Redwood Convertible Notes (Six) On December 28, 2015, we entered into and received
proceeds from a Securities Purchase Agreement with Redwood Management, LLC, pursuant to which we agreed to sell, and Redwood agreed
to purchase, One Million Six Hundred Thousand Dollars ($1,600,000) in 10% Convertible Promissory Notes. On February 26, 2016, and
again on March 7, 2016, the Securities Purchase Agreement was amended, and the total amount of funding to which Redwood is obligated
was reduced to $525,000. The Notes have an original issue discount of five percent (5%). The first note was issued on December
28, 2015 in the face amount of One Hundred Fifty Seven Thousand Five Hundred Dollars ($157,500), to Redwood Management, LLC. The
second note was issued on January 8, 2016, in the face amount of One Hundred Thirty One Thousand Two Hundred Fifty Dollars ($131,250),
to Redwood Fund III Ltd. The third note was issued on February 22, 2016, in the face amount of Seventy Eight Thousand Seven Hundred
Fifty Dollars ($78,750), to Redwood Management, LLC. The fourth note was issued on March 7, 2016, in the face amount of Seventy
Eight Thousand Seven Hundred Fifty Dollars ($78,750), to Redwood Management, LLC. The fifth note was issued on March 11, 2016,
in the face amount of One Hundred Five Thousand Dollars ($105,000). The sixth and final note was issued on May 27, 2016, in the
face amount of One Hundred Five Thousand Dollars ($105,000). The maturity date of each note is nine (9) months after its issuance.
Each note will be convertible after ninety (90) days into our common stock at a conversion price equal to 60% of the lowest traded
price of the Common Stock in the fifteen (15) Trading Days prior to the Conversion Date. The notes can be prepaid by us at any
time upon ten (10) days written notice to Redwood for a cash amount equal to the sum of the then outstanding principal amount of
the note and interest multiplied by 130%. The shares of common stock issuable upon conversion
of the Redwood Notes are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance
of the Redwood Notes were exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation
D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was
no solicitation. The Company evaluated the Redwood Notes and
determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as
such, did not constitute a derivative liability. The aggregate beneficial conversion feature discounts resulting from the beneficial
conversion prices are as follows:
BCF on Redwood Management, LLC Convertible Notes
First Second Third Fourth Fifth Sixth
Market price upon origination $ 0.04350 $ 0.03000 $ 0.02750 $ 0.01970 $ 0.01600 $ 0.02400
Conversion price below market $ 0.03810 $ 0.01440 $ 0.01904 $ 0.00896 $ 0.00580 $ 0.00624
BCF discount $ 130,000 $ 99,231 $ 67,500 $ 56,313 $ 51,176 $ 90,000 An aggregate of $236,123 and $-0- was amortized
on the six Redwood notes during the six months ended June 30, 2016 and 2015, respectively. Second JMJ Financial Convertible Note On December 15, 2015, we entered into a Securities
Purchase Agreement with JMJ Financial, pursuant to which we sold to JMJ Financial a 12% Convertible Promissory Note ("Second
JMJ Note") in the original principal amount of $27,500. The Second JMJ Note has a maturity date of December 15, 2016, and
is convertible after 180 days into our common stock at the higher of (i) $0.00005 cents per share or (ii) sixty percent (60%) of
the lowest trading price of the Company's common stock over the twenty five (25) trading days prior to receipt of a conversion
notice. The shares of common stock issuable upon conversion
of the Second JMJ Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance
of the Second JMJ Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation
D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was
no solicitation. The Company evaluated the Second JMJ Note and
determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as
such, did not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion price
of $0.03262 below the market price on December 15, 2015 of $0.034 provided a value of $25,000, of which $23,904 and $-0- was amortized
during the six months ended June 30, 2016 and 2015, respectively. Vis Vires Group, Inc. Convertible Note On September 21, 2015, we received proceeds
from a Securities Purchase Agreement we entered into on September 3, 2015 with VIS Vires Group, Inc., pursuant to which we sold
to VIS Vires an 8% Convertible Promissory Note ("First VIS Vires Note") in the original principal amount of $48,000.
The First VIS Vires Note has a maturity date of June 8, 2016, and is convertible after 180 days into our common stock at the higher
of (i) $0.00001 cents per share or (ii) fifty eight percent (58%) of the average of the three (3) lowest closing bid prices over
the 10 days prior to receipt of a conversion notice. The shares of common stock issuable upon conversion
of the First Vis Vires Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The
issuance of the First Vis Vires Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule
506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations,
and there was no solicitation. The Company evaluated the First Vis Vires Note
and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and,
as such, did not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion price
of $0.00747 below the market price on September 21, 2015 of $0.016 provided a value of $39,448, of which $24,183 and $-0- was amortized
during the six months ended June 30, 2016 and 2015, respectively. First JMJ Financial Convertible Note On September 2, 2015, we entered into a Securities
Purchase Agreement with JMJ Financial, pursuant to which we sold to JMJ Financial a 12% Convertible Promissory Note ("First
JMJ Note") in the original principal amount of $55,000. The First JMJ Note has a maturity date of September 1, 2016, and is
convertible after 180 days into our common stock at the higher of (i) $0.00005 cents per share or (ii) sixty percent (60%) of the
lowest trading price of the Company's common stock over the twenty five (25) trading days prior to receipt of a conversion notice. The shares of common stock issuable upon conversion
of the First JMJ Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance
of the First JMJ Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation
D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was
no solicitation. The Company evaluated the First JMJ Note and
determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as
such, did not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion price
of $0.0194 below the market price on September 2, 2015 of $0.032 provided a value of $50,000, of which $33,561 and $-0- was amortized
during the six months ended June 30, 2016 and 2015, respectively. Adar Bays, LLC Convertible Note On February 24, 2015, we entered into a Securities
Purchase Agreement with Adar Bays, LLC, pursuant to which we sold to Adar Bays an 8% Convertible Promissory Note ("First Adar
Bays Note") in the original principal amount of $44,100. The First Adar Bays Note has a maturity date of February 24, 2016,
and is convertible after 180 days into our common stock at the higher of (i) $0.001 cents per share or (ii) 70% of the average
of the two (2) lowest closing prices of our common stock for the fifteen (15) trading days prior to receipt of a conversion notice. The shares of common stock issuable upon conversion
of the First Adar Bays Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The
issuance of the First Adar Bays Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule
506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations,
and there was no solicitation. The Company evaluated the First Adar Bays Note
and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and,
as such, did not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion price
of $0.0473 below the market price on February 24, 2015 of $0.14 provided a value of $20,420, of which $-0- and $7,049 was amortized
during the six months ended June 30, 2016 and 2015, respectively. LG Capital Funding, LLC Convertible Note On January 30, 2015, we entered into a Securities
Purchase Agreement with LG Capital Funding, LLC, pursuant to which we sold to LG Capital an 8% Convertible Promissory Note ("Second
LG Capital Note") in the original principal amount of $82,687. The Second LG Capital Note has a maturity date of January 29,
2016, and is convertible after 180 days into our common stock at the higher of (i) $0.001 cents per share or (ii) 70% of the average
of the two (2) lowest closing prices of our common stock for the fifteen (15) trading days prior to receipt of a conversion notice. The shares of common stock issuable upon conversion
of the Second LG Capital Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The
issuance of the Second LG Capital Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to
Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our
operations, and there was no solicitation. The Company evaluated the Second LG Capital
Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price
and, as such, did not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion
price of $0.042 below the market price on January 30, 2015 of $0.14 provided a value of $32,143, of which $-0- and $13,386 was
amortized during the six months ended June 30, 2016 and 2015, respectively. Typenex Co-Investment, LLC Convertible Note On November 25, 2014, we entered into a Securities
Purchase Agreement with Typenex Co-Investment, LLC, pursuant to which we sold to Typenex a 10% Convertible Promissory Note ("First
Typenex Note") in the original principal amount of $86,500. The First Typenex Note has a maturity date of August 25, 2015,
and is convertible into our common stock at the lesser of (i) $0.18 per share, or (ii) 70% (the "Conversion Factor")
multiplied by the Market Price (as defined in the Note). If the Market Price of our common stock falls below $0.10 per share after
the issuance of the Note, the Conversion Factor will automatically be reduced by 5% for all conversions completed while the Market
Price is below $0.10 per share. Notwithstanding the foregoing, so long as no Event of Default has occurred, the Conversion Price
shall be not less than $0.0001 (the "Conversion Floor"). For the avoidance of doubt, upon the occurrence of an Event
of Default, the Conversion Floor shall not apply to any future Conversions and shall be of no further force or effect. The shares of common stock issuable upon conversion
of the First Typenex Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance
of the First Typenex Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation
D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was
no solicitation. The Company evaluated the First Typenex Note
and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and,
as such, does not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion price
of $0.1019 below the market price on November 25, 2014 of $0.225 provided a value of $37,019, of which $-0- and $24,544 was amortized
during the six months ended June 30, 2016 and 2015, respectively. |
