CONVERTIBLE PROMISSORY NOTES PAYABLE | 12 Months Ended |
Dec. 31, 2013 |
CONVERTIBLE PROMISSORY NOTES PAYABLE | ' |
CONVERTIBLE PROMISSORY NOTES PAYABLE | ' |
NOTE 10 – CONVERTIBLE PROMISSORY NOTES PAYABLE |
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(a) |
As of December 31, 2010, the Company has cumulative net liabilities of $428,475, net of $241,657 debt discount. The liability includes $645,000 unpaid convertible notes principal and $25,132 accrued interest for all the convertible notes the Company entered into prior to January 1, 2011. These notes mature in one year from the date issued and bear interest at 10% per annum and are convertible at the option of the holder in to shares of common stock. The conversion prices range from $0.044 to $0.07. As of January 1, 2011, the Company was not in compliance with the repayment terms of these notes. |
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In 2011, the Company raised $300,000 through debt financing from multiple lenders. The Company issued each lender a convertible promissory note in the principal amount of money lender loaned to the Company. The promissory note matures in one year and bears interest at 10% per annum and is convertible at the option of the holder in to shares of common stock. The conversion prices range from $0.067 to $0.157. In addition the Company granted 634,229 warrants to the note holders. The warrants have a life of 5 years and are fully vested on the date of the grant, the exercise price of the warrants ranges from $0.084 to $0.1884. |
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The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815 ”Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of these note $300,000 was recorded net of a discount of $57,638. The debt discount consisted of approximately $13,719 related to the fair value of the embedded conversion option and approximately $43,919 related to the fair value of the warrants. The debt discount was being charged to interest expense ratably over the term of the convertible note. |
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During the year ended December 31, 2011, multiple lenders requested to convert total aggregated $125,000 principal plus accrued interest of $14,097 into the Company’s common stock. The Company issued total aggregated 2,539,747 shares of common stock in connection with such conversions. |
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In 2012, the Company raised $768,500 through debt financing from multiple lenders. The Company issued each lender a convertible promissory note in the principal amount of money lender loaned to the Company. The Company issued the lender for each loan a convertible promissory note bearing interest at rates of 8% to 12% per annum with maturity dates of September 15, 2012 to November 16, 2013. The loans and accrued interest are to be paid on the maturity dates. Each loan is evidenced by the promissory note the Company issued to the lender which contains conversion clauses that allow the lenders the option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock. Each of the notes contains variable conversion prices representing discount rate between 5% and 50% of market price. In addition, the Company also issued total 1,933,333 warrants to the lenders to purchase additional shares of common stock at exercise of $0.072 to $0.05. These warrants have term of 5 years. In addition a note-holder received 4,375,000 shares of common stock in consideration for entering into the note. |
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The Company accounted for the issuance of the convertible promissory note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and were marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of these notes were recorded net of a discount of $649,100. The debt discount was being charged to interest expense ratably over the term of the convertible note. |
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In addition, the Company incurred approximately $130,000 of financing cost related to these transactions which will be amortized over the term of the loans. |
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On October 4, 2013, at the request of the lender due to default, the Company converted $303,499 of convertible notes and accrued interest into a new convertible note in the amount of $531,431. The increase in principal was due to amounts charged by the lender for penalties, interest, legal and other fees. The newly issued note bears interest at rates of 18% per annum and is due on demand. The lender may convert all or any portion of the outstanding principal, accrued and unpaid interest, and any other sums due and payable under the Revolving Note into shares of the Company’s common stock at a conversion price equal to 85% of the lowest daily volume weighted average price of the Company’s common stock during the five trading days immediately prior to such applicable conversion date, in each case subject to the lender not being able to beneficially own more than 4.99% of our outstanding common stock upon any conversion. The conversion price is subject to anti-dilution protection in the event that the Company issues additional equity securities at a price less than the conversion price. On March 10, 2014, TCA accelerated the outstanding principal balance, interest, calculated at the default rate of 18%, and all sums due under the original note and any amendments. (see Note 13 – Litigation) |
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During the year ended December 31, 2012, multiple lenders requested to convert total aggregated $664,576 principal plus accrued interest of $29,955 into the Company’s common stock. The Company issued total aggregated 146,134,552 shares of common stock in connection with such conversions. |
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During the year ended December 31, 2013, multiple lenders requested to convert total aggregated $342,151 principal plus accrued interest of $57,519 into the Company’s common stock. The Company issued total aggregated 84,053,707 shares of common stock in connection with such conversions. |
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During the year ended December 31, 2013, the Company repaid principal of $32,500. |
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As of December 31, 2013, the Company is reflecting liabilities of $1,055,272 including accrued interest of $148,843 and the Company is not in compliance with the repayment terms with certain notes and is currently in technical default. |
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(b) |
On August 3, 2011, the Company borrowed $125,000 from a private investor and issued to the investor a secured convertible promissory note in the principal amount of $125,000. The note matures on December 1, 2011 and bears interest at a stated rate of 8% per annum and the note is convertible into shares of common stock of the Company at a 30% discount from the current market price (as defined in the Note). The Company has the right to redeem the Note at any time by paying the outstanding principal amount of the Note multiplied by a premium according to the following schedule, plus all accrued interest: 120% of the outstanding principal amount if redeemed within 90 days after the issuance date; 125% of the outstanding principal amount if redeemed within 180 days after the issuance date; 130% of the outstanding principal amount if redeemed after 180 days after the issuance date. The Note is further guaranteed by two officers of the Company and secured by stock pledge agreements with each officer, pursuant to which each of the officers has pledged 2,000,000 shares of the Company’s common stock owned by them as collateral to secure payment of the Note. In connection with the issuance of the Note, the Company also issued to the investor a common stock purchase warrant, expiring August 3, 2018, to purchase 1,250,000 shares of common stock at an exercise price of $0.10 per share. |
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The Company accounted for the issuance of the convertible promissory notes in accordance with ASC 815” Derivatives and Hedging.” Accordingly, the warrants and the embedded conversion option of the convertible note are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note of $125,000 was recorded net of a discount of $125,000. The debt discount consisted of $83,900 to the fair value of the warrants and $41,100 related to the fair value of the embedded conversion option. In addition to the $125,000 mentioned above, the Company recorded a charge in the amount of $15,900 which represents the fair value of conversion options in excess of the debt discount recorded. The debt discount will be charged to interest expense ratably over the term of the convertible notes. |
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In 2012, the lender requested to convert principal $125,000 plus accrued interest of $6,685 into the Company’s common stock. The Company issued 3,581,697 shares of common stock in connection with such conversion. |
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(c) |
On January 8, 2013 for gross proceeds of $25,000 the Company issued a convertible promissory note bearing interest at the rate of 10% per annum with a maturity date of January 8, 2014. The loan and accrued interest are to be paid on the maturity date. The promissory note contains conversion clauses that allow the lender the option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock at a conversion rate of $0.03 per share. In addition, the Company also issued 1,666,667 warrants to the lender to purchase additional shares of common stock at an exercise price of $0.0036 per share. These warrants are fully vested and have a term of 5 years. |
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The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $13,600. The debt discount relates to the beneficial conversion feature embedded in the conversion option and the fair value of the warrants attached to the notes. The debt discount is charged to interest expense ratably over the term of the convertible note. |
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During the year ended December 31, 2013, the note holder requested to convert total aggregated $25,000 principal plus accrued interest of $167, into the Company’s common stock. The Company issued total aggregated 8,388,890 shares of common stock in connection with such conversion. |
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(d) |
On May 16, 2013, the Company in conjunction with an existing note holder entered into a new loan agreement with a new lender for the sale and transfer of a $20,000 note plus $4,895 accrued interest this note matured and was in technical default with the repayment provisions of the terms of the agreement. The Company cancelled the original note and issued the new lender a convertible promissory note for $29,895 bearing interest rate of 10% per annum with a maturity date of January 1, 2014. The loan and accrued interest are to be paid on the maturity date. The promissory note contains conversion clauses that allow the lender the option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock at a conversion rate of the lesser of a.) 60% of the low traded price of the Company’s common stock for the twenty trading day period immediately preceding the date at the which Holder, by written notice gives notice to the Company of its election to convert or b.) $0.01 per share. The Company recorded $5,000 loan cost in connection with the increase of the principal included in deferred financing costs. The loan cost will be amortized over the life of the loan. |
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The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $19,930. The debt discount relates to the beneficial conversion feature embedded in the conversion option. The debt discount is charged to interest expense ratably over the term of the convertible note. |
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During the year the Company was charged interest and penalties by the note holder totaling $33,515. |
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During the year ended December 31, 2013, the note holder requested to convert total aggregated $29,895 principal plus accrued interest and penalties of $15,435, into the Company’s common stock. The Company issued total aggregated 10,000,000 shares of common stock in connection with such conversion. |
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(e) |
On May 22, 2013, the Company entered into a loan agreement (“credit facility) for the principal sum of $335,000 less any fees. The components of the credit facility are $300,000 proceeds of the loan plus $35,000 original issue discount. The maturity date is one year from the effective date of each draw made by the Company. The loan and accrued interest are to be paid on the maturity date. In addition after 90 days that the amount drawn is outstanding a one-time interest charge of 12% will be charged and added to the principal sum. The promissory note contains conversion clauses that allow the lender, at any time from 180 days after the Effective Date, the option to convert the amount payable plus all accrued and unpaid interest due under the agreement into common stock at a conversion price per share of the lesser of $0.018 or 60% of the lowest trade price in the 25 trading days preceding the conversion. |
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The Company received net cash proceeds of $65,000 upon entering the agreement on May 22, 2013 and recorded $6,500 loan cost in connection with this transaction. The loan costs have been included in deferred financing costs and will be amortized through the maturity date of the loan. |
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The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $41,000. The debt discount relates to the beneficial conversion feature embedded in the conversion option. The debt discount is charged to interest expense ratably over the term of the convertible note. On August 20, 2013, the Company recorded a $8,580 one-time interest expense and added such amount to the principal of the May 22, 2013 draw when the Company failed to repay the loan within 90 days. |
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On August 22, 2013 the Company drew down from the credit facility $35,500 and received net cash proceeds of $30,000 after the associated legal fees. The Company recorded $5,500 loan cost in connection with this transaction and the loan cost will be amortized through the maturity date of the loan. The gross proceeds from the sale of the note are recorded net of a debt discount of $29,000. The debt discount relates to the beneficial conversion feature embedded in the conversion option. The debt discount is charged to interest expense ratably over the term of the convertible note. |
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On October 23, 2013, the Company drew down from the credit facility $55,000 and received net cash proceeds of $50,000 after the associated legal fees. The Company recorded $5,000 loan cost in connection with this transaction and the loan cost will be amortized through the maturity date of the loan. The gross proceeds from the sale of the note are recorded net of a debt discount of $55,000. The debt discount relates to fair value of the conversion option of the note. The debt discount is charged to interest expense ratably over the term of the convertible note. The fair value of the conversion option on the date of issuance in excess of the face amount of the note was recorded to interest expense on the date of issuance. |
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On July 11, 2013, the Company in conjunction with an existing note holder entered into a new loan agreement with a new lender for the sale and transfer of a $20,000 promissory note plus $5,095 accrued interest this note matured and was in technical default with the repayment provisions of the terms of the agreement. The Company cancelled the original promissory note and issued the new lender a convertible promissory note for $25,000 with a maturity date of September 30, 2013. The convertible promissory note contains conversion clauses that allow the lender the option to convert the loan amount plus all accrued and unpaid interest due under the note into common stock at a conversion rate of the lesser of (a.) $0.015 or (b) 50% of the lowest closing bid price for the Company’s common stock during the twenty (20) trading day period immediately preceding the date at the which Holder, by written notice gives notice to the Company of its election to convert. The Company recorded $33,000 debt discount and the excess fair value of 8,000 was charged to interest expense upon the consummation of the arrangement. |
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During the year ended December 31, 2013, the note holder requested to convert total aggregated $25,470 principal plus accrued interest of $0, into the Company’s common stock. The Company issued total aggregated 4,209,917 shares of common stock in connection with such conversion. |
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(f) |
A convertible promissory note was issued on August 19, 2013 in the amount of $25,000 to a lender. The note matures on August 19, 2014 with interest at 10%. The note is convertible into the Company’s common stock at a conversion price of $0.015 per shares. In addition, 8,333,333 Warrants were issued at a price of $.003 per share. The warrants are fully vested and have a life of five years from date of issuance. |
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The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $121,400. The debt discount relates to the beneficial conversion feature embedded in the conversion option and the fair value of the warrants attached to the notes. The excess fair value of $96,400 was charged to interest expense on the date of the agreement and the debt discount is charged to interest expense ratably over the term of the convertible note. |
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(g) |
On July 25, 2013, the Company was advanced $10,000 from a lender and subsequently on August 16, 2013, the lender funded another $25,000. The Company issued a convertible promissory note for the total amount of $35,000 to the lender. The note matures in one year from the issuance date with interest at 10%. The note is convertible into the Company’s common stock at a conversion price of $0.005 per shares. In addition, 5,833,333 warrants were issued with an exercise price of $. 006 per share. The warrants are fully vested and have a life of 5 years from date of issuance. |
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The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $159,300. The debt discount relates to the beneficial conversion feature embedded in the conversion option and the fair value of the warrants attached to the notes. The excess fair value of $124,300 was charged to interest expense on the date of the agreement and the debt discount is charged to interest expense ratably over the term of the convertible note |
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(h) |
On September 5, 2013 the Company issued a convertible promissory note for $ 5,000. The note matures in one year from the issuance date with the stated interest rate at 10%. The note is convertible into the Company’s common stock at a conversion price of $0.005 per shares. In addition, 200,000 Warrants were issued with an exercise price of $0.006 per share. The warrants are fully vested and have a life of 5 years from date of issuance. |
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The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $5,700. The debt discount relates to the beneficial conversion feature embedded in the conversion option and the fair value of the warrants attached to the notes. The excess fair value of $700 was charged to interest expense on the date of the agreement and the debt discount is charged to interest expense ratably over the term of the convertible note. The debt discount is charged to interest expense ratably over the term of the convertible note. |
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(i) |
On September 12, 2013 the Company issued a convertible promissory note for $ 100,000. The note matures in one year from the issuance date with the stated interest rate at 10%. The note is convertible into the Company’s common stock at a conversion price of $0.0085 per share. In addition, 10,416,666 warrants were issued with an exercise price of $0.0096 per share. The warrants are fully vested and have a life of 5 years from date of issuance. |
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The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $82,400. The debt discount relates to fair value of the warrants attached to the notes. The debt discount is charged to interest expense ratably over the term of the convertible note. |
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(j) |
On December 10, 2013 the Company issued a convertible promissory note for $ 35,000. The note matures in one year from the issuance date with the stated interest rate at 10%. The note is convertible into the Company’s common stock at a conversion price of $0.005 per share. In addition, 5,833,333 warrants were issued with an exercise price of $0.006 per share. The warrants are fully vested and have a life of 5 years from date of issuance. |
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The Company accounted for the issuance of the convertible promissory note and the warrants attached to the note in accordance with ASC 815 “Derivatives and Hedging”. Accordingly, the warrants and the embedded conversion option of the convertible notes are recorded as derivative liabilities at their fair market value and are marked to market through earnings at the end of each reporting period. The gross proceeds from the sale of the note are recorded net of a discount of $35,000. The debt discount relates to fair value of the conversion option and the warrants attached to the notes. The debt discount is charged to interest expense ratably over the term of the convertible note. The fair value of the conversion option and warrants on the date of issuance in excess of the face amount of the note was recorded to interest expense on the date of issuance. |
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(k) |
During the year ended December 31, 2013 the Company issued a total of 121,376,671 shares of common stock upon requests from note holders to convert loans with principal plus accrued interest totaling $57,686 based on the terms set forth in the loans. |
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As of December 31, 2013, the Company is in technical default with the repayment terms of the convertible notes payable. |
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Convertible promissory notes payable and accrued interest at December 31, 2013 and 2012 consists of the following: |
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| December 31, |
| 2013 | | 2012 |
Convertible notes payable | $ | 1,449,619 | | $ | 1,191,716 |
Discount on convertible notes | | -210,781 | | | -80,606 |
Convertible notes payable, net | | 1,238,838 | | | 1,111,110 |
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Less current maturities | | -1,238,838 | | | -1,111,110 |
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Long-Term Portion | $ | - | | $ | - |