| Convertible Notes Payable | Note 7 – Convertible Notes Payable On May 4, 2015, the Company issued
a Convertible Promissory Note for $21,500 to LG Capital Funding, LLC (the “LG Note”). The Company received
net proceeds of $20,000 after debt issuance costs of $1,500 paid for lender legal fees. The LG Note carries a per annum
interest rate of 8%, matures May 1, 2016 and converts at a 46% discount to the market price defined in the LG Note as the
lowest closing price (as defined in the note agreement) per share of the CompanyÂ’s common stock for the twenty trading
days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the LG Note,
the Company is required to pay interest at 22% per annum and the holder could at their option declare the LG Note, together
with accrued and unpaid interest, to be immediately due and payable. In addition, the LG Note provides for adjustments
for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common
stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of
assets, where there is a change in control of the Company. The Company must at all times reserve 11,000,000 shares of common
stock for potential conversions. On November 24, 2015, LG converted $2,612 of principal and interest into 948,358 shares of
common stock at a conversion price of $0.002754 per share. On December 10, 2015, the Company accepted and agreed to an
Exchange Agreement (the “EA”), pursuant to Mammoth Corporation (“Mammoth”) having acquired the 2015
LG convertible promissory note from LG. The Company issued a Restated Convertible Note to Mammoth for $31,339 (the
“First Replacement Note”). The First Replacement Note is due September 9, 2016 with a 10% interest rate and is
convertible into shares of the CompanyÂ’s common stock at any time at the discretion of Mammoth at a variable conversion
price (“VCP”). The VCP is calculated as the lowest closing price during the twenty (20) trading days immediately
prior to the conversion date multiplied by fifty four percent (54%), representing a forty six percent (46%) discount. Mammoth
paid LG $28,490 on December 17, 2015 to acquire all rights under their note. As of December 31, 2015, the principal balance
of the First Replacement Note is $31,339. On May 26, 2015, the Company issued a
Convertible Promissory Note for $24,000 to Crown Bridge Partners, LLC (the “CB Note”). The Company received net
proceeds of $20,000 on June 1, 2015, after debt issuance costs of $1,000 paid for lender legal fees and an Original Issuance
Discount (“OID”) of $3,000. The CB Note carries a per annum interest rate of 8%, matures May 26, 2016 and
converts at a 47% discount to the market price defined in the CB Note as the average of the two lowest trading prices (as
defined in the note agreement) per share of the CompanyÂ’s common stock for the fifteen trading days immediately
preceding the date of conversion. Upon the occurrence of an event of default, as defined in the LG Note, the Company is
required to pay interest at 22% per annum and the holder could at their option declare the CB Note, together with accrued and
unpaid interest, to be immediately due and payable. In addition, the CB Note provides for adjustments for dividends payable
other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security
or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a
change in control of the Company. The Company must at all times reserve 10,400,000 shares of common stock for potential
conversions. On December 10, 2015, the Company accepted and agreed to an Exchange Agreement (the “EA”), pursuant
to Mammoth Corporation (“Mammoth”) having acquired the 2015 CB convertible promissory note from CB. The Company
issued a Restated Convertible Note to Mammoth for $38,280 (the “Second Replacement Note”). The Second Replacement
Note is due September 9, 2016 with a 10% interest rate and is convertible into shares of the CompanyÂ’s common stock at
any time at the discretion of Mammoth at a VCP. The VCP is calculated as the average of the two lowest trading price during
the fifteen (15) trading days immediately prior to the conversion date multiplied by fifty three percent (53%), representing
a forty seven percent (47%) discount. Mammoth paid Crown Bridge $34,800 on December 17, 2015 to acquire all rights under
their note. As of December 31, 2015, the principal balance of the Second Replacement Note is $38,280. The LG Note, the CB Note, the First Replacement
Note and the Second Replacement Note together are referred to as the 2015 Convertible Notes. OID costs of $4,500 included in the LG and CB Notes, will be amortized
over the earlier of the terms of the Note or any redemptions. Since the LG and CB Notes were acquired by a third party in December
2015, $4,500 has been expensed in interest expense for the year ended December 31, 2015. The Company determined that the conversion
feature of the 2015 Convertible Notes represent an embedded derivative since the Notes are convertible into a variable number
of shares upon conversion. Accordingly, the 2015 Convertible Notes were not considered to be conventional debt under EITF 00-19
and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly,
the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding
amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of
the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in
the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance
sheet. The embedded feature included in the 2015 Convertible Notes resulted in an initial debt discount of $41,000, an initial
derivative liability expense of $83,492 and an initial derivative liability of $124,491. On the date the notes were purchased
by the third party, the Company revalued the embedded conversion feature of the LG and CB Notes. The fair value of the 2015 Convertible
Notes was calculated based on the Black Scholes method consistent with the terms of the related debt. A summary of the derivative liability balance for the LG and CB
Notes as of December 9, 2015 (the purchase date) is as follows:
2015
Beginning Balance $ —
Initial Derivative Liability 124,491
Fair Value Change 25,349
Reduction for conversions (8,699 )
Reduction for notes purchased (141,141 )
Ending Balance $ -0- In conjunction of
MammothÂ’s purchase of the LG and CB Notes the Company recognized a gain on debt extinguishment of $113,676, as a
result of the elimination of the remaining derivative liability, net of the reduction of the corresponding note discount. The Company determined that the conversion
feature of the 2015 Replacement Notes represent an embedded derivative since the Notes are convertible into a variable number
of shares upon conversion. Accordingly, the 2015 Replacement Notes were not considered to be conventional debt under EITF 00-19
and the embedded conversion feature was bifurcated from the debt host and accounted for as a derivative liability. Accordingly,
the fair value of these derivative instruments being recorded as a liability on the consolidated balance sheet with the corresponding
amount recorded as a discount to each Note. Such discount is being amortized from the date of issuance to the maturity dates of
the Notes. The change in the fair value of the liability for derivative contracts are recorded in other income or expenses in
the consolidated statements of operations at the end of each quarter, with the offset to the derivative liability on the balance
sheet. The embedded feature included in the 2015 Replacement Notes resulted in an initial debt discount of $69,619, an initial
derivative liability expense of $102,816 and an initial derivative liability of $166,106. As of December 31, 2015 the Company revalued
the embedded conversion feature of the 2015 Replacement Notes. The fair value of the 2015 Replacement Notes was calculated based
on the Black Scholes method consistent with the terms of the related debt. A summary of the derivative liability balance of the Replacement
Notes as of December 31, 2015 is as follows:
2015
Beginning Balance $ —
Initial Derivative Liability 166,106
Fair Value Change (24,670 )
Ending Balance $ 141,436 The fair value at the commitment and re-measurement
dates for the CompanyÂ’s derivative liabilities were based upon the following management assumptions as of December 31, 2015:
Commitment date Remeasurement date
Expected dividends -0- -0-
Expected volatility 380%-396% 349%-396%
Expected term 4.5-12 months 5-9 months
Risk free interest .25%-.47% .24%-.32% A summary of the convertible notes payable
balance as of December 31, 2015 is as follows:
2015
Beginning Balance $ -0-
New notes issued in 2015 115,119
Conversion (2,500 )
Notes sold (43,000 )
Amortization of debt discount 23,707
Discount (115,119 )
Removed due to debt extinguishment 27,466
Ending Balance $ 5,673 |
