Promissory notes, including related parties and debenture payable | 3 Months Ended |
Mar. 31, 2014 |
Debt Disclosure [Abstract] | ' |
Promissory notes, including related parties and debenture payable | ' |
6. Promissory notes, including related parties and debenture payable: |
|
Promissory notes, including related parties at March 31, 2014 and December 31, 2013, consist of the following: |
|
F-12 | | | | | | |
|
|
|
|
| 2014 | | 2013 | |
| | | | | | |
Promissory notes payable: | | | | | | |
| | | | | | |
Various, including related parties of $157,322 (2014) and $173,113 (2013); interest rate ranging from 8% to 10% [A] | $ | 171,422 | | $ | 192,213 | |
| | | | | | |
Notes payable; interest rates ranging from 9% to 15%; interest payable quarterly; the notes are unsecured, matured on February 28, 2008; currently in default and past due [B] | | 2,090,719 | | | 2,090,719 | |
| | | | | | |
| $ | 2,262,141 | | $ | 2,282,932 | |
|
. [A] Pursuant to a November 4, 2011 Board of director resolution, these notes are convertible at conversion rates, determined at the discretion of the board of directors. During the three months ended March 31, 2014 the Company issued notes of $5,000 (all to related parties) and made payments of $25,791 (including $20,791 to related parties). |
|
| [B] | These notes payable (the “Promissory Notes”) originally became due on February 28, 2007. The Company renewed $283,000 of the Promissory Notes on the same terms and conditions as previously existed. In April 2007 the Company, through a financial advisor, restructured $1,825,000 of the Promissory Notes (the “Restructured Notes”). The Company has accrued an expense of $36,500 to compensate the financial advisor 2% of the Restructured Notes as well as having issued 150,000 shares of common stock to the financial advisor. The Restructured Notes carry a stated interest rate of 15% (a default rate of 20%) and matured on February 28, 2008. The Company has not paid the interest due since June 2007, and no principal payments on the Promissory Notes have been made since 2008 and accordingly, they are in default. Accrued interest on these notes total $2,909,686 and is included in accrued expenses on the consolidated balance sheets. | | | | |
|
The chairman of the board of the Company has personally guaranteed up to $1 million of the Restructured Notes and two other non-related individuals each guaranteed $500,000 of the Restructured Notes. In consideration of their guarantees the Company granted warrants to purchase a total of 1,600,000 shares of common stock of the Company at an exercise price of $0.50 per share. The warrants were valued at $715,200 using the Black-Scholes option pricing model and were amortized over the one-year term of the Restructured Notes. The warrants expired in March 2010. |
|
In January 2008, the Company and the three guarantors received a complaint filed by the financial advisor (acting as agent for the holders of the Restructured Notes) and the holders of the Restructured Notes. The claim is seeking $1,946,250 plus per diem interest beginning January 22, 2008 at the rate of twenty percent (20%) per annum plus $37,000 due the financial advisor for unpaid fees. The court has ruled in favor of a motion for summary judgment filed by certain of the plaintiffs and a judgment was entered on August 18, 2009 in the total amount of $2,484,922 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The Company is not aware of any payments being made by any of the guarantors and accordingly, the Company includes these liabilities on the March 31, 2014 and December 31, 2013 balance sheets promissory notes payable and accrued expenses. |
|
F-13 | | | | | | |
|
|
|
|
Debenture payable: |
|
2012 Notes |
|
On October 9, 2012, the Company issued a $5,000 convertible promissory note to Carebourn Capital LP (“Carebourn”). The Carebourn note was due on demand, bears interest at 8% per annum and had a conversion feature similar to the 2013 Asher Notes (defined below). During the three months ended March 31, 2014, the Company issued 4,849,217 shares of common stock upon conversion of the note and $696 of accrued and unpaid interest. No amounts remain open as of March 31, 2014. |
|
On October 17, 2012, the Company issued a $25,000 convertible promissory note to Continental Equities, LLC (“Continental”). On March 26, 2013, Carebourn acquired the Continental note from Continental. During the year ended December 31, 2013, the Company issued 18,737,288 shares of common stock to Carebourn Partners, LLC. (“Carebourn Partners”) and Carebourn Partners’ assignee upon the conversion of the acquired Continental note. During the three months ended March 31, 2014, the Company issued 5,414,365 shares of common stock for $3,411 of accrued and unpaid interest. No amounts remain open as of March 31, 2014. |
|
On October 24 and 29, 2012, the Company issued convertible promissory notes of $9,000 and $16,000 (“the 2012 Gel Notes”) respectively, to GEL Properties, LLC (“Gel”) The conversion price for the 2012 Gel Notes was equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share, for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares had not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest were also subject to conversion. No fractional shares or scrip representing fractions of shares were to be issued on conversion, but the number of shares issuable were to be rounded to the nearest whole share. Also in October 2012, the Company issued four (4) additional notes to Gel in the aggregate, as amended, $85,000, and Gel issued the Company four secured promissory notes, one for $25,000 and three each in the amount of $20,000, initially due June 21, 2013. Gel funded $65,000 of the notes to the Company during the year ended December 31, 2013, and the remaining $20,000 was funded on January 28, 2014. During the year ended December 31, 2013, the Company issued 288,467,551 shares of common stock in satisfaction of $63,145 of the Gel 2012 Notes. As of December 31, 2013, the Company had $26,855 of principal amounts outstanding to Gel. During the three months ended March 31, 2014, the Company issued 314,508,480 shares of common stock in satisfaction of $46,855 of the 2012 Gel Notes. No amounts remain open of the 2012 Gel Notes as of March 31, 2014. |
|
On November 1, 2012, the Company issued a convertible promissory note to David Schaper (“Schaper”) in the amount of $269,858 in exchange for previously accrued legal fees. The note bears interest at 8% per annum and is convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. During the year ended December 31, 2013, the Company issued 419,203,501 shares of common stock upon the conversion of $103,188 of the Note. As of December 31, 2013, the balance of the note was $166,670. During the three months ended March 31, 2014, the Company issued 1,195,075,049 shares of common stock upon the conversion of $125,842 of the Note. As of March 31, 2014, the balance of the note is $40,828. |
|
F-14 | | | | | | |
|
|
|
|
2013 Notes |
|
On March 14, 2013 the Company issued a convertible promissory note for $46,000 to an accredited investor (the “March 2013 Note”). The March 2013 Note, was due eight months from issuance and bears an interest rate of 8% per annum, and in the case of an event of default increases to 12% per annum (“the Default Rate”). The conversion feature of the 2013 Note is a 50% discount to the average of the three lowest day closing bid prices for the ten trading days prior to conversion. The March 2013 Note matured November 14, 2013, is in default, and the Default Rate was effective at that date. During the three months ended March 31, 2014, the Company issued 78,000,000 shares of common stock upon conversion of $3,900 of the note. The balance of the March 2013 Note is $42,100 as of March 31, 2014. |
|
The following notes issued in 2013, bear interest at 8% per annum and other than as described below are convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. The notes issued in 2013 are referred to as the 2013 Notes. |
|
On April 8, 2013, the Company issued a convertible promissory note to Schaper for $5,000. During the three months ended March 31, 2014, the Company issued 100,000,000 shares of common stock upon the conversion of the note. No amounts remain open as March 31, 2014. |
|
On April 26, 2013, the Company issued a convertible promissory note for $50,000 to an unaffiliated accredited investor. During the three months ended March 31, 2014, the Company issued 167,359,375 shares of common stock upon the conversion of the note and $3,555 of accrued and unpaid interest. No amounts remain open as of March 31, 2014. |
|
On June 6, 2013 ($12,000), July 12, 2013 ($12,500) and August 9, 2013 ($6,250) the Company issued convertible promissory notes to Carebourn Partners. During the three months ended March 31, 2014, the Company issued 86,757,922 shares of common stock upon the conversion of these notes and $1,024 of accrued and unpaid interest. No amounts remain open as of March 31, 2014. |
|
On August 9, 2013, the Company issued a $6,250 note to Linrick Industries, LLC. During the three months ended March 31, 2014, the Company issued 10,268,561 shares of common stock upon the conversion of the note and $250 of accrued and unpaid interest in full satisfaction of this note. |
|
On August 22, 2013, the Company issued a $6,000 convertible promissory note to Schaper. During the three months ended March 31, 2014, the Company issued 40,000,000 shares of common stock upon conversion of $4,000 of this note. The outstanding principal balance on this note is $2,000 as of March 31, 2014. |
|
|
F-15 | | | | | | |
|
On September 3, 2013 ($32,500) and October 17, 2013 ($37,500), the Company issued convertible promissory notes to Asher Enterprises, Inc. (“Asher” and “2013 Asher Notes”). Among other terms the 2013 Asher Notes are due nine months from their issuance date, bear interest at 8% per annum, are payable in cash or shares at the Conversion Price as defined herewith, and are convertible at a conversion price (the “Conversion Price”) for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the Note, the Company is required to pay interest at 22% per annum and the holders may at their option declare the 2013 Notes, together with accrued and unpaid interest, to be immediately due and payable. In addition, the 2013 Notes provide 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. During the three months ended March 31, 2014, the Company issued 49,682,540 shares of common stock upon conversion of the $32,500 note and $1,300 of accrued and unpaid interest. The outstanding principal balance on the October note is $37,500 as of March 31, 2014. |
|
On October 7, 2013, the Company issued a $3,500 convertible note to AU Funding, LLC in exchange for the cancellation of accounts payable of $3,500. During the three months ended March 31, 2014, the Company issued 75,676,800 shares of common stock upon the conversion of the note and $284 of accrued and unpaid interest in full satisfaction of this note. |
|
On October 7, 2013, the Company issued a $5,000 convertible note to Corizona Mining Partners, LLC in exchange for the cancellation of $5,000 of accounts payable. During the three months ended March 31, 2014, the Company issued 100,000,000 upon conversion of the note. There are no amounts open on this note as of March 31, 2014. |
|
On October 18, 2013, the Company issued four (4) convertible notes each in the amount of $25,000 to Gel (the 2013 Gel Notes). The conversion price for the 2013 Gel Notes is equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share, for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. Also on October 18, 2014, Gel issued the Company four secured promissory notes, each in the amount of $25,000, due April 21, 2014. The Company received the $100,000 on March 6, 2014. As of March 31, 2014, the four convertible promissory notes in the aggregate of $100,000 of principal amount owed Gel was outstanding. |
|
On November 19, 2013, the Company issued a $16,500 convertible note to Carebourn Capital L.P. The outstanding principal balance on this note is $16,500 as of March 31, 2014. |
|
On November 22, 2013, the Company issued a $35,000 (the Fong Note) and $30,000 (the Hollander Note) convertible note to Mr. Fong and Mr. Hollander, respectively, for the cancellation of accrued and unpaid fees. During the three months ended March 31, 2014, the Company issued 230,000,000 shares of common stock in satisfaction of $22,000 of the Hollander note. The outstanding principal balances of the Fong and Hollander notes as of March 31, 2014 are $35,000 and $8,000 respectively. |
|
2014 Notes |
|
On January 28, 2014, the Company issued a convertible promissory note to Mr. Fong for $25,500 in satisfaction of accrued and unpaid fees due Mr. Fong. Also on January 28, 2014, the Company entered into a Debt Settlement and Release Agreement (the “DSR”) with Mr. Fong, Mary Virginia Knight (“Knight”) or Knight assigns. Pursuant to the DSR, the Company has issued 300,000,000 shares of common stock to the Knight assign, in cancellation and satisfaction of $15,000 of the convertible note due Mr. Fong. |
|
|
F-16 | | | | | | |
|
On February 10, 2014, the Company issued two (2) convertible promissory notes in the amounts of $95,814 and $95,813 in exchange for previously accrued legal fees. The notes bear interest at 8% per annum and are convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. As of March 31, 2014, the balances of the notes are outstanding. |
|
On February 20, 2014, the Company issued two (2) convertible promissory notes, each in the amount of $40,000 to LG Capital (“LG”). The Company received $38,000 after debt issuance costs of $2,000 and a $40,000 secured promissory note. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $389 has been expensed as debt issuance costs (included in interest expense) for the three months ended March 31, 2014. The balance of this note is $40,000 as of March 31, 2014. |
|
On March 3, 2014, the Company issued a $52,500 convertible promissory note to Carebourn Capital. The note is due on demand, bears interest at 8% and is convertible at a 50% discount of the average of the three lowest days closing prices for the ten (10) days preceding conversion. The conversion price cannot exceed 250% of the market price as of the date of the executed term sheet by the parties. The Company received $50,000 after debt issuance costs of $2,500 which will be amortized over the six month term of the Note or any redemptions and accordingly $375 has been expensed as debt issuance costs (included in interest expense) for the three months ended March 31, 2014. The balance of this note is $52,500 as of March 31, 2014. |
|
On March 6, 2014 the Company issued a $50,000 convertible promissory note to Gel, under the same terms and conditions as the 2012 Gel Notes. The note is outstanding as of March 31, 2014. |
|
The Company has determined that the conversion features of the 2012, 2013 and 2014 Notes represent embedded derivatives since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the Notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion features must be bifurcated from the debt hosts and accounted for as derivative liabilities. Accordingly, the fair value of these derivative instruments have been recorded as liabilities on the consolidated balance sheet with the corresponding amounts recorded as a discounts to the Notes. Such discounts will be accreted from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liabilities for derivative contracts will be recorded to other income or expenses in the consolidated statement of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. |
|
The fair value of the conversion features embedded in the 2014 Notes as of their dates of issuance and in their entirety as of March 31, 2014 was determined to approximate their fair intrinsic value due to the terms of conversion. |
|
The inputs used to estimate the fair value of the derivative liabilities are considered to be level 1 inputs within the fair value hierarchy. |
|
A summary of the derivative liabilities related to convertible notes as of December 31, 2013 and March 31, 2014 is as follows: |
|
F-17 | | | | | | |
|
|
|
|
| | | | Fair value change- three months ended 3/31/14 | |
| Derivative | | | Derivative Liability Balance 3/31/14 |
Fair Value | Liability Balance | Initial Derivative Liability | Redeemed convertible notes | |
| 1/1/14 | | | |
2012 Notes | $172,602 | - | ($120,982) | - | $51,620 |
2013 Notes | $363,260 | - | -195,800 | - | 167,460 |
2014 Notes | - | $559,512 | -35,600 | - | 523,912 |
Total | $535,862 | $559,512* | ($352,382) | | $742,992 |
| | | | | | |
|
* $19,885 of the initial derivative liability, equal to the excess of the liabilities over the face value of the related notes is included in derivative liability expense of $46,036 for the three months ended March 31, 2014. |
|
A summary of debentures payable as of December 31, 2013 and March 31, 2014 is as follows: |
|
| Balances | Issuance of new convertible notes | Amortization of discount on convertible | Debenture conversions three months ended 3/31/14 | Balances | |
| 1/1/14 | Notes | 3/31/14 | |
| | | | |
| | | | |
| | | | |
| | | | |
Face Value | | | | |
2012 Notes | $171,670 | - | - | ($130,842) | $40,828 | |
2013 Notes | $349,255 | | - | -204,755 | 144,500 | |
2014 Notes | - | $579,627 | | -20,000 | 559,627 | |
Note discount | ($187,843) | -539,627 | $359,357 | - | -368,113 | |
Total | $333,082 | $ 40,000 | $359,357 | ($355,597) | $376,842 | |