Promissory notes, including related parties and debenture payable | 12 Months Ended |
Dec. 31, 2014 |
Debt Disclosure [Abstract] | |
Promissory notes, including related parties and debenture payable | 6. Promissory notes, including related parties and debenture payable: |
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Promissory notes, including related parties at December 31, 2014 and December 31, 2013, consist of the following: |
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| | 2014 | | 2013 | | | | | | | | | | |
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Promissory notes payable: | | | | | | | | | | | | | | | | | | |
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Various, including related parties of $74,397 (2014) and $170,338 (2013); interest rate ranging from 8% to 10% [A] | | $ | 107,672 | | | $ | 192,213 | | | | | | | | | | | |
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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 | | | | | | | | | | | |
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| | $ | 2,198,391 | | | $ | 2,282,932 | | | | | | | | | | | |
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| [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 year ended December 31, 2014 the Company issued notes of $91,200 (including related parties of $15,000) and made payments of $115,941 (including $110,941 to related parties). | | | | | | | | | | | | | | | | |
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| [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 $3,224,686 and $2,804,686 as of December 31, 2014 and 2013, respectively is included in accrued expenses on the consolidated balance sheets. | | | | | | | | | | | | | | | | |
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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. |
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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 $2,487,250 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 December 31, 2014 and 2013 consolidated balance sheets in promissory notes payable and accrued expenses. |
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Debenture payable: |
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2012 Notes |
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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 year ended December 31, 2014, the Company issued 8,082 shares of common stock upon conversion of the note and $696 of accrued and unpaid interest. As of December 31, 2014, the note has been fully satisfied. |
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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 31,229 shares of common stock to Carebourn Partners, LLC. (“Carebourn Partners”) and Carebourn Partners’ assignee upon the conversion of the acquired Continental note. During the year ended December 31, 2014, the Company issued 9,024 shares of common stock for $3,411 of accrued and unpaid interest. As of December 31, 2014, the note has been fully satisfied. |
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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 was 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 480,779 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 year ended December 31, 2014, the Company issued 524,181 shares of common stock in satisfaction of $46,855 of the 2012 Gel Notes. As of December 31, 2014, the 2012 Gel Notes have been satisfied. |
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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 698,673 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 year ended December 31, 2014, the Company issued 2,240,336 shares of common stock upon the conversion of $163,670 of the Note. As of December 31, 2014, the balance of the note is $3,000. |
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2013 Notes |
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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. |
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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 year ended December 31, 2014, the Company issued 516,194 shares of common stock upon conversion of $19,425 of the note. The balance of the March 2013 Note is $26,575 as of December 31, 2014. |
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On April 8, 2013, the Company issued a convertible promissory note to Schaper for $5,000. During the year ended December 31, 2014, the Company issued 166,667 shares of common stock upon the conversion of the note. As of December 31, 2014, the note has been satisfied. |
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On April 26, 2013, the Company issued a convertible promissory note for $50,000 to an unaffiliated accredited investor. During the year ended December 31, 2014, the Company issued 278,932 shares of common stock upon the conversion of the note and $3,555 of accrued and unpaid interest. As of December 31, 2014, the note has been fully satisfied. |
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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 year ended December 31, 2014, the Company issued 144,597 shares of common stock upon the conversion of these notes and $1,024 of accrued and unpaid interest. As of December 31, 2014, these notes have been satisfied. |
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On August 9, 2013, the Company issued a $6,250 note to Linrick Industries, LLC. During the year ended December 31, 2014, the Company issued 17,114 shares of common stock upon the conversion of the note and $250 of accrued and unpaid interest in full satisfaction of this note. |
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On August 22, 2013, the Company issued a $6,000 convertible promissory note to Schaper. During the year ended December 31, 2014, the Company issued 66,667 shares of common stock upon conversion of $4,000 of this note. The outstanding principal balance on this note is $2,000 as of December 31, 2014. |
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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 |
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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 year ended December 31, 2014, the Company issued 191,138 shares of common stock upon conversion of $70,000 of the notes and $2,800 of accrued and unpaid interest. As of December 31, 2014, these notes have been satisfied. |
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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 year ended December 31, 2014, the Company issued 126,128 shares of common stock upon the conversion of the note and $284 of accrued and unpaid interest in full satisfaction of this note. |
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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 year ended December 31, 2014, the Company issued 166,667 shares upon conversion of the note. As of December 31, 2014, the note has been fully satisfied. |
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On October 18, 2013, the Company issued four (4) convertible notes each in the amount of $25,625 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, 2013, 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. During the year ended December 31, 2014, the Company issued 944,260 shares upon conversion of $83,295 of the notes. As of December 31, 2014, the four convertible promissory notes in the aggregate of $19,205 of principal amount owed Gel was outstanding. |
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On November 19, 2013, the Company issued a $16,500 convertible note to Carebourn Capital L.P. During the year ended December 31, 2014, the Company issued 112,945 shares upon the conversion of the note. As of December 31, 2014, the note has been satisfied. |
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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 year ended December 31, 2014, the Company issued 383,333 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 December 31, 2014 are $35,000 and $8,000 respectively. |
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2014 Notes |
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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 500,000 shares of common stock to the Knight assign, in cancellation and satisfaction of $15,000 of the convertible note due Mr. Fong. As of December 31, 2014, the outstanding principal balance of this note is $10,500. |
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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. During the year ended December 31, 2014, the company issued 416,667 shares of common stock in settlement of $12,500 of the notes. As of December 31, 2014, the balances of the notes totaled $179,127 |
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On February 4, 2014 ($32,500) and March 5, 2014 ($27,500), the Company issued convertible promissory notes to Asher, under the same terms and conditions as the 2013 Asher Notes. The Company received $55,000 cash after debt issuance costs of $5,000. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly all $5,000 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2014. During the year ended December 31, 2014, the Company issued 1,469,306 shares of common stock upon conversion of $60,000 of the notes and $2,400 of accrued and unpaid interest .As of December 31, 2014, these notes have been satisfied. |
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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 $2,000 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2014. During the year ended December 31, 2014, the Company issued 1,391,990 shares of common stock in satisfaction of $40,000 in convertible note principal and $1,759 of accrued and unpaid interest. As of December 31, 2014, the outstanding principal balance of these notes is $40,000. |
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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 day’s 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 $2,500 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2014. During the year ended December 31, 2014, the Company issued 987,764 shares of common stock in full satisfaction of the convertible note principal and $1,398 of accrued and unpaid interest. As of December 31, 2014, the note has been fully satisfied. |
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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. As of December 31, 2014, the outstanding principal balance of this note is $50,000. |
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On March 27, 2014, the Company issued an $831,000 secured convertible promissory note (the “Note”) to Typenex (the “Lender”). The Typenex Note carries an original issuer discount of $75,000. In addition, the Company agreed to pay $6,000 to cover the Lender’s legal and other fees. At the option of the Lender, the note converts at $0.0025 per share. The conversion by the Lender of any portion of the Outstanding Balance shall only be exercisable in ten (10) tranches (each, a “Tranche”), consisting of an initial Tranche in an amount equal to $88,500 and nine (9) additional Tranches, each in the amount of $82,500, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note. The Note carries a ten % interest rate and matures on the seventeenth month after funding. Typenex funded $75,000 on April 1, 2014 and also delivered nine (9) secured promissory notes to the Company, each in the amount of $75,000. Each payment received will constitute an “Issue Date”. The Company also granted Typenex the right to purchase at any time on or after each Issue Date until the date which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration Date”), a number of fully paid and non-assessable shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share equal to $41,250 divided by the Market Price (as defined in the Note). During the year ended December 31, 2014, the company issued 558,333 shares of common stock upon conversion of $16,500 of the note. |
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On April 1, 2014 ($15,000) and April 23, 2014 ($12,500), the Company issued convertible promissory notes to Carebourn Capital. During the year ended December 31, 2014, the Company issued 851,467 shares of common stock in satisfaction of $25,544 in convertible note principal. As of December 31, 2014, the outstanding principal balance of these notes is $1,956. |
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On May 16, 2014, the Company issued a $27,000 convertible promissory note, bearing interest at 12% per annum, to WHC Capital, LLC. The Company received $25,000 after debt issuance costs of $2,000, which will be amortized over the earlier of the one year term of the Note or any redemptions. Accordingly, $2,000 has been expensed for the year ended December 31, 2014 as debt issuance costs (included in interest expense). During the year ended December 31, 2014, the company issued 291,667 shares of common stock upon conversion of $8,575 of note principal. As of December 31, 2014, a principal balance of $18,425 remains outstanding. |
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On July 11, 2014, the Company issued a $42,750 convertible promissory note to Auctus Private Equity Fund, LLC. . The note is due on demand, bears interest at 8% and is convertible at a 45% discount of the average of the two lowest day’s closing prices for the twenty five (25) days preceding conversion. The conversion price may be adjusted downward if, within three (3) business days of the transmittal of the Notice of Conversion, the Common Stock has a closing bid which is 5% or lower than that set forth in the Notice of Conversion. The company received $37,750 after debt issuance costs of $5,000, which will be amortized over the earlier of the one year term of the Note or any redemptions. Accordingly, $4,722 has been expensed for the year ended December 31, 2014, as debt issuance costs (included in interest expense). As of December 31, 2014, the full principal balance of $42,750 remains outstanding. |
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On July 16, 2014, the Company issued a convertible promissory note for $50,000 to an unaffiliated accredited investor. The note is due on demand, bears interest at 8% and is convertible at 50% discount of the average of the three lowest day’s closing prices for the ten (10) days preceding conversion. As of December 31, 2014, the full principal balance of $50,000 remains outstanding. |
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On July 22, 2014 ($52,500), August 28, 2014 ($27,500), September 19, 2014 ($27,500), and November 3, 2014 (27,500) the Company issued convertible promissory notes to Carebourn Capital. The notes are due on demand, bear interest at 12% and are convertible at a 50% discount of the average of the three lowest day’s closing prices for the ten (10) days preceding conversion. The Company received $125,000 after debt issuance costs of $10,000, which will be amortized over the earlier of the one year term of the Note or any redemptions. Accordingly, $6,098 has been expensed for the year ended December 31, 2014, as debt issuance costs (included in interest expense). As of December 31, 2014, the principal balance of $135,000 remains outstanding. |
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On October 9, 2014, the Company issued a convertible promissory note for $27,500 to LG Capital (“LG”). The Company received $25,000 after debt issuance costs of $2,500.The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $1,153 has been expensed as debt issuance costs (included in interest expense) for the year ended December 31, 2014. As of December 31, 2014, the outstanding principal balance of these notes is $40,000. |
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On December 2, 2014, the Company issued a convertible promissory note for $25,000 to an unaffiliated accredited investor. The note is due on demand, bears interest at 8% and is convertible at 50% discount of the average of the three lowest day’s closing prices for the ten (10) days preceding conversion. As of December 31, 2014, the full principal balance of $25,000 remains outstanding. |
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On December 23, 2014, the Company issued a $7,500 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 day’s closing prices for the ten (10) days preceding conversion. As of December 31, 2014, the full principal balance of $7,500 remains outstanding. |
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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. |
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The fair value of the conversion features embedded in the 2014 Notes as of their dates of issuance and in their entirety as of December 31, 2014 was determined to approximate their fair intrinsic value due to the terms of conversion. |
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The inputs used to estimate the fair value of the derivative liabilities are considered to be level 3 inputs within the fair value hierarchy. |
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A summary of the derivative liabilities related to convertible notes as of December 31, 2014 and December 31, 2013 is as follows: |
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| | Initial Derivative Liability | | Redeemed convertible notes | | Fair value change- year ended 12/31/13 | | Derivative Liability Balance 12/31/13 |
Derivative |
Liability Balance |
1/1/13 |
$ | 489,406 | | | | 424,132 | | | | (365,559 | ) | | | (12,117 | ) | | $ | 535,862 | |
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| | Initial Derivative Liability | | Redeemed convertible notes | | Fair value change- year ended 12/31/14 | | Derivative Liability Balance 12/31/14 |
Derivative |
Liability Balance |
1/1/14 |
$ | 535,862 | | | | 992,895 | | | | (857,734 | ) | | | 386,579 | | | $ | 1,057,602 | |
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A summary of debentures payable as of December 31, 2014 and 2013 is as follows: |
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| | 2014 | | 2013 | | | | | | | | | | |
Face Value | Face Value | | | | | | | | | | |
2012 Notes | | $ | — | | | $ | 171,670 | | | | | | | | | | | |
2013 Notes | | $ | 88,075 | | | $ | 349,255 | | | | | | | | | | | |
2014 Notes | | $ | 709,999 | | | $ | — | | | | | | | | | | | |
Note discount | | $ | (135,431 | ) | | $ | (187,843 | ) | | | | | | | | | | |
Total | | $ | 662,643 | | | $ | 333,082 | | | | | | | | | | | |
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