• Filing Date: 2018-01-12
  • Form Type: 10-Q
  • Description: Quarterly report
v3.8.0.1
CONVERTIBLE NOTES
9 Months Ended
Sep. 30, 2017
Debt Disclosure [Abstract]  
CONVERTIBLE NOTES

NOTE 4 CONVERTIBLE NOTES

 

On May 1, 2014, the Company entered into an agreement with Anubis Capital Partners, a business advisor. The agreement calls for monthly payments of $2,500 in service fees along with the issuance of a $500,000 fully earned convertible debt that accrues interest at 8% per annum. The holder has the option to convert any balance of principal and interest into common stock of the Company. The rate of conversion for the note is calculated as the lowest of the 20 trading closing prices immediately preceding such conversion, discounted by 50%. During December 2015, the Company issued 25,000,000 shares of common stock in payment of $212,500 of principal on this convertible debt. On June 29, 2017, Anubis Capital Partners sold $100,000 of the principal due under this note to an unrelated party. As a result, the Company issued a replacement note with the same terms to the new holder. At September 30, 2017 and December 31, 2016, $20,000 was owed in services fees, accrued interest was $11,337 and $88,795, and the outstanding convertible debt was $187,500 and $287,500, respectively.

 

During the year ended December 31, 2014, the Company issued $173,500 of convertible notes. The convertible notes carry interest at 10% per annum and are due 24 months from the date of issuance, June 2016 through September 2016. The note holders had the option to convert into shares of the Company’s common stock after 180 days at 50% of the market price. During April and May of 2015, the Company issued 14,660,440 shares of common stock upon conversion of $173,500 of principal amount outstanding under these convertible notes. At September 30, 2017 and December 31, 2016, the remaining accrued interest on the convertible notes was $12,027 and $12,027, respectively.

 

During December 2015, the Company issued a one-year convertible note in the amount of $175,000. The convertible note is currently in default, and contains a prepayment penalty of $25,000. The holder has the option to convert any balance of principal into common stock of the Company. The rate of conversion for the note is calculated as the lowest of the 10 trading closing prices immediately preceding such conversion, discounted by 32.5%. During December 2016, the Company issued 12,000,000 shares of common stock upon conversion of $13,770 of principal amount outstanding under this convertible note. During May 2017, the original note holder sold the note to an unrelated party. As a result, the Company issued a replacement note with the same terms to the new holder. During June 2017, the Company issued 70,119,900 shares of common stock upon conversion of $48,436 of principal amount outstanding under this convertible note. During July 2017, the Company issued 35,450,000 shares of common stock upon conversion of $3,403 of principal amount outstanding under this convertible note. During August 2017, the Company issued 76,200,000 shares of common stock upon conversion of $3,658 of principal amount outstanding under this convertible note. During September 2017, the Company issued 133,517,700 shares of common stock upon conversion of $6,409 of principal amount outstanding under this convertible note. The remaining balance due at September 30, 2017 and December 31, 2016 was $100,517 and $161,730, respectively. At September 30, 2017 and December 31, 2016, the remaining accrued interest on the convertible note was $3,532 and $0, respectively.

 

During June 2016, the Company sold a convertible note in the principal amount of $121,325. The convertible note was due in one year and contains an original issue discount in the amount of $15,825. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 50%. During April and June 2017, the Company issued 62,498,139 shares of common stock upon conversion of $63,427 of principal amount outstanding under this convertible note. The remaining balance due at September 30, 2017 and December 31, 2016 was $0 and $73,989, respectively. Interest accrues at 12% per annum and is paid daily. 

 

During September 2016, the Company sold a one-year convertible note in the principal amount of $63,825. The convertible note is currently in default and contains an original issue discount in the amount of $13,825. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 50%. The remaining balance due at September 30, 2017 and December 31, 2016 was $13,030 and $53,481, respectively. Interest accrues at 12% per annum and is paid daily.

 

During April 2017, the Company sold Carebourn a Convertible Promissory Note in the principal amount of $135,575 (the “April 2017 Carebourn Convertible Note”), pursuant to a Securities Purchase Agreement, dated April 17, 2017. The April 2017 Carebourn Convertible Note bears interest at the rate of 12% per annum (22% upon an event of default) and is due and payable on April 17, 2018. The conversion price of the April 2017 Carebourn Convertible Note is the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 50%. The April 2017 Carebourn Convertible Note had an original issue discount of $27,075. In addition, the Company paid $8,500 of Carebourn’s expenses and attorney fees in connection with the sale of the note, which were included in the principal amount of the note. The remaining balance due at September 30, 2017 was $55,117. Interest accrues at 12% per annum and is paid daily.

 

During April 2017, pursuant to a Note Purchase Agreement, the Company sold a 10% Convertible Debenture in the principal amount of $32,500 (which included a $5,000 original issue discount) to Sojourn Investments, LP (“Sojourn” and the “Sojourn Debenture”). The principal amount of the debenture accrues at 10% per annum until paid or converted into common stock (18% upon the occurrence of an event of default). The rate of conversion for the note is calculated as the lowest of the 20 trading closing prices immediately preceding such conversion, discounted by 42%. The Sojourn Debenture has a maturity date of January 12, 2018, provided the debenture can be repaid at any time, provided that if repaid more than 30 days after the issuance date, the Company is required to pay 130% of the principal amount of the debenture, together with accrued interest. The remaining balance due at September 30, 2017 was $32,500. The accrued interest on the note was $1,523 at September 30, 2017.

 

During May 2017, the Company sold a one-year convertible note in the principal amount of $35,000. The convertible note contains an original issue discount in the amount of $3,000. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 35%. The note was repaid in full in June 2017. The remaining balance due at September 30, 2017 was $0. Interest accrues at 12% per annum and is paid daily. The accrued interest on the note was $0 at September 30, 2017.

 

During May 2017, the Company sold a one-year convertible note in the principal amount of $100,000. The convertible note contains an original issue discount in the amount of $9,500. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 45%. The remaining balance due at September 30, 2017 was $100,000. Interest accrues at 10% per annum. The accrued interest on the note was $3,507 at September 30, 2017. 

 

During June 2017, the Company sold a one-year convertible note in the principal amount of $100,000. The convertible note contains an original issue discount in the amount of $11,083. The holder funded an additional $50,000 in August 2017, with an original discount of $4,167. The total purchase price of the note is $150,000 with an original discount of $15,250. The holder has the option to convert any balance of principal into common stock of the Company after 180 days from the date of funding. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 42%. The remaining balance due at September 30, 2017 was $150,000. Interest accrues at 10% per annum. The accrued interest on the note was $2,458 at September 30, 2017.

 

On June 29, 2017, the Company issued a replacement note in the amount of $100,000, related to the Anubis Capital Partners note dated May 1, 2014. The replacement note accrues interest at 8% per annum. The holder has the option to convert any balance of principal and interest into common stock of the Company. The rate of conversion for the note is calculated as the lowest of the 20 trading closing prices immediately preceding such conversion, discounted by 58%. During July 2017, the Company issued 33,781,609 shares of common stock in payment of $5,878 of principal on this convertible debt. During September 2017, the Company issued 86,171,725 shares of common stock in payment of $4,998 of principal on this convertible debt. At September 30, 2017 and December 31, 2016, accrued interest was $1,916 and $0, and the outstanding convertible debt was $89,124 and $0, respectively.

 

On June 29, 2017, the Company sold three one-year convertible notes in the principal amount of $210,000. The convertible notes contain an original issue discount in the amount of $20,000. The funds were received July 3, 2017. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 42%. The remaining balance due at September 30, 2017 was $210,000. Interest accrues at 8% per annum. The accrued interest on the note was $4,281 at September 30, 2017.

 

Derivative Liability

 

On May 1, 2014, the Company secured $500,000 in the form of a convertible promissory note. The note bears interest at the rate of 8% per annum until it matures, or until there is an event of default. The note matured on May 1, 2015. The holder has the option to convert any balance of principal and interest into common stock of the Company. The rate of conversion for the note is calculated as the lowest of the 20 trading closing prices immediately preceding such conversion, discounted by 50%.

 

On December 3, 2015, the Company secured $175,000 in the form of a convertible promissory note. The note does not bear interest until or unless there is an event of default. The note matured on December 3, 2016. The holder has the option to convert any balance of principal into common stock of the Company. The rate of conversion for the note is calculated as the lowest of the 10 trading closing prices immediately preceding such conversion, discounted by 32.5%.

 

On June 15, 2016, the Company secured $121,325 in the form of a convertible promissory note. The note bears interest at 12% per annum. The note matured on June 15, 2017. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 50%.

 

On September 23, 2016, the Company secured $63,825 in the form of a convertible promissory note. The note bears interest at 12% per annum. The note matured on September 23, 2017. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 50%.

 

During April 2017, the Company sold Carebourn a Convertible Promissory Note in the principal amount of $135,575 (the “April 2017 Carebourn Convertible Note”), pursuant to a Securities Purchase Agreement, dated April 17, 2017. The April 2017 Carebourn Convertible Note bears interest at the rate of 12% per annum (22% upon an event of default) and is due and payable on April 17, 2018. The conversion price of the April 2017 Carebourn Convertible Note is the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 50%. The April 2017 Carebourn Convertible Note had an original issue discount of $27,075. In addition, the Company paid $8,500 of Carebourn’s expenses and attorney fees in connection with the sale of the note, which were included in the principal amount of the note. Interest accrues at 12% per annum and is paid daily. 

 

During April 2017, pursuant to a Note Purchase Agreement, the Company sold a 10% Convertible Debenture in the principal amount of $32,500 (which included a $5,000 original issue discount) to Sojourn (the “Sojourn Debenture”). The principal amount of the debenture accrues at 10% per annum until paid or converted into common stock (18% upon the occurrence of an event of default). The rate of conversion for the note is calculated as the lowest of the 20 trading closing prices immediately preceding such conversion, discounted by 42%. The Sojourn Debenture has a maturity date of January 12, 2018, provided the debenture can be repaid at any time, provided that if repaid more than 30 days after the issuance date, the Company is required to pay 130% of the principal amount of the debenture, together with accrued interest.  

 

During May 2017, the Company sold a convertible note in the principal amount of $100,000. The convertible note is due in one year and contains an original issue discount in the amount of $9,500. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 45%. Interest accrues at 10% per annum.

 

During June 2017, the Company sold a convertible note in the principal amount of $100,000. The convertible note is due in one year and contains an original issue discount in the amount of $11,083. The holder funded an additional $50,000 in August with an original discount of $4,167. The total purchase price of the note is $150,000 with an original discount of $15,250. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 42%. Interest accrues at 10% per annum.

 

On June 29, 2017, the Company issued a replacement note in the amount of $100,000, related to the Anubis Capital Partners note dated May 1, 2014. The note accrues interest at 8% per annum. The holder has the option to convert any balance of principal and interest into common stock of the Company. The rate of conversion for the note is calculated as the lowest of the 20 trading closing prices immediately preceding such conversion, discounted by 50%.

 

On June 29, 2017, the Company sold three convertible notes in the principal amount of $210,000. The convertible notes are due in one year and contain an original issue discount in the amount of $20,000. The funds were received July 3, 2017. The holder has the option to convert any balance of principal into common stock of the Company after the initial 180 days. The rate of conversion for this note is calculated as the average of the three lowest closing prices of the Company’s common stock during the 20 trading days immediately preceding such conversion, discounted by 42%. The remaining balance due at September 30, 2017 was $210,000. Interest accrues at 8% per annum.

 

Due to the variable conversion price associated with these convertible promissory notes, the Company has determined that the conversion feature is considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. 

 

The initial fair values of the embedded debt derivatives of $500,842, $227,746, $322,660, $108,458, $782,714, $87,897, $67,152, $466,458, $300,415, and $343,436, respectively, were allocated between debt discount and interest expense according to the face value of the debt.  During the nine months ended September 30, 2017 and 2016, $1,384,997 and $431,118, respectively, was charged to current period operations as interest expenses. The fair value of the described embedded derivative was determined using the Black-Scholes Model with the following assumptions:

 

(1) risk free interest rate of 0.10% to 0.45%
(2) dividend yield of 0%;
(3) volatility factor of 248% to 441%;
(4) an expected life of the conversion feature of 365 days; and
(5) estimated fair value of the Company’s common stock of $0.0001 to $0.008 per share.

 

During the nine months ended September 30, 2017, the Company recorded a gain on fair value of derivative of $806,434.

 

The following table represents the Company’s derivative liability activity for the nine months ended September 30, 2017:

 

Balance at December 31, 2016  $1,525,135 
Revaluation due to insufficient shares available for issuance   (300,766)
Valuation upon issuance of debts   2,048,072 
Conversion   (566,593)
Change in derivative liability during the nine months ended September 30, 2017   (806,434)
Balance September 30, 2017  $1,899,414