Convertible Notes Payable

6 Months Ended

Jun. 30, 2017

Notes Payable [Abstract]

Convertible Notes Payable

Note 7 – Convertible Notes Payable

Convertible notes payable at June 30, 2017 and December 31, 2016 consist of the following:

	June 30,			December 31,
	2017			2016
Convertible note payable to PTPI dated January 22, 2015 (A) - principal	$	15,523		$	40,740
Accrued interest – convertible note payable to PTPI		14,870			13,112
Convertible note payable to Guardian Patch I LLC dated May 23, 2017 (B)		660,132			—
Accrued interest – convertible note payable to Guardian Patch LLC		19,641			—
Convertible notes payable to Crown Bridge Partners LLC dated June 9, 2017 (C)		100,000			—
Accrued interest – convertible note payable to Crown Bridge Partners LLC		482			—
Convertible notes payable to Eagle Equity LLC dated June 8, 2017 (D)		100,000			—
Accrued interest – convertible note payable to Eagle Equity LLC		482			—
Convertible notes payable to JSJ Investments, Inc. dated June 7, 2017 and June 29, 2017 (E)		100,000			—
Accrued interest – convertible note payable to JSJ Investments, Inc.		378			—
Total convertible notes payable		1,011,508			53,852
Unamortized debt discount		(909,919	)		—
Convertible notes payable, net of discount		101,589			53,852
Less notes receivable collateralized by convertible notes payable		(100,482	)		—
Convertible notes payable	$	1,107		$	53,852

(A) On January 22, 2015, the Company entered into an Exchange Agreement with Stanley Hills, the original holder (the “Holder”) of the PTPI Note pursuant to which PTPI Note exchanged $75,273 in debt into a 10% Convertible Debenture in the principal amount of $75,273 (the “Note”). The PTPI Note matures January 21, 2017 (the “Maturity Date”) and interest associated with the Note I Note is 10% per annum, which is payable on the Maturity Date. The PTPI Note is convertible into shares of common stock of the Company, at the option of Note I, at a fixed conversion price of $0.00752734.

The Holder has agreed to restrict its ability to convert the PTPI Note and receive shares of common stock such that the number of shares of common stock held by it in the aggregate and its affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The PTPI Note was issued in reliance upon exemptions from registration pursuant to Section 3(a)(9) under the Securities Act of 1933. The Holder is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933. In addition, on March 2, 2015, the Company and the Holder amended that certain 10% Convertible Debenture (the “PTPI Note I Debenture”) which debt underlying the PTPI Note I Debenture was initially incurred on October 6, 2009 and exchanged for the Note I Debenture on January 19, 2014. The parties agreed that the conversion price in the PTPI Note I Debenture would not be impacted by the 1:1,000 stock split implemented by the Company on February 24, 2015 and will remain $0.0075273.

The Company is under default per the terms of the PTPI Note, as at maturity in January 2017, the Company did not have sufficient free cash to pay off the note. The Company is in negotiations with the Holder in good faith to resolve the situation. The Company cannot predict the result of such negotiations. The current note balance is $30,393, which includes $14,870 of accrued interest. At December 31, 2016, the Company had only this note outstanding as well. The balance at that time was $53,852, which included accrued interest of $13,112, and was net of debt discount.

Guardian LLC (the “Note Holder”) understands that the Company may be seeking additional capital or funding and believes that the lock-up and leak-out restrictions and provisions, as further described herein, will improve the Company’s prospects for obtaining additional financing and thus improving the overall financial condition of the Company. As such on or around June 26, 2017 the Company and the Note Holder entered into a lock-up and leak-out:

1. Subject to the terms of this Agreement, the Note Holder agrees that for a period of nine (9) months from the Effective Date of this Agreement (the “Lock-Up Period”), the Note Holder shall not convert the Note into Common Stock for safe keeping or, directly or indirectly, sell, offer to sell, contract to sell, assign, pledge, hypothecate, encumber or otherwise transfer, or enter into any contract, option or other arrangement or understanding with respect to the sale, assignment, pledge or other disposition of (each a “Transfer”) any beneficial rights with respect to the Note.

2. Leak-Out Provisions.     Subject to the terms of this Agreement, the Note Holder agrees that for a period beginning immediately upon the end of the Lock-Up Period and ending fifteen (15) months from the Effective Date of this Agreement (the “Leak-Out Period”), the Note Holder shall have the right to sell the lessor of (i) five (5%) percent of the previous day’s traded volume of the Company’s Common Stock, or (ii) Five Thousand (5,000) shares of the Common Stock on a per daily basis.

At June 30, 2017, the outstanding balance included $14,870 of accrued interest.

(B) On May 23, 2017, the Company entered into a conversion agreement with Guardian Patch I LLC (“Guardian”) pursuant to which the parties agreed to convert the amounts provided by Guardian to the Company, previously recorded in accounts payable and accrued expenses, into a convertible note payable in the amount of $660,132. 

The note bears interest at 6%, matures May 30, 2019 and is convertible into the Company’s common stock, at Guardian’s option, at a conversion price equal to 50% of the lowest closing price for the common stock on the principal market during the ten consecutive trading days immediately preceding the conversion date, which, in no event, will be less than $0.01 per share. Guardian has agreed to restrict their ability to convert the note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.9% of the then issued and outstanding shares of common stock.

At June 30, 2017, the outstanding balance included $19,641 of accrued interest.

(C) On June 9, 2017, the Company entered into a securities purchase agreement with Crown Bridge Partners, LLC (“CBP”), providing for the purchase of two convertible notes payable in the aggregate amount of $100,000 with the first note being in the amount of $50,000 and the second note being in the amount of $50,000 each accruing interest at 8% per annum and due on June 9, 2018. The first note was funded in cash. With respect to second note CBP issued a note payable to the Company in the amount of $50,000 to offset second note. The funding of second note is subject to certain conditions. CBP is required to pay the principal amount of the note payable to the Company in cash and in full prior to executing any conversions under second note.

The CBP notes may be converted by CBP at any time into shares of Company’s common stock calculated at the time of conversion, except as set forth above, at a conversion price equal to 55% of the average of the three lowest trading prices of the Company’s common stock as reported on the National Quotations Bureau OTC Markets which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the twenty (20) prior trading days including the day upon which a notice of conversion is received by the Company. In the event the Company experiences a DTC “Chill” on its shares or the market price is below $0.25, the conversion price shall be decreased to 45%. If the Company fails to maintain its status as “DTC Eligible” for any reason, or, if the conversion price is equal to or lower than $0.01, then an additional 15% discount shall be factored into the conversion price until the CBP notes are no longer outstanding.

During the first six months, the CBP notes is in effect, the Company may redeem the CBP notes by paying to an amount equal to 135% of the face amount plus any accrued interest during the first 90 days after issuance and 150% of the face amount plus any accrued interest from day 91 through day 180 after issuance. The CBP Notes may not be prepaid after the six-month anniversary.

At June 30, 2017, the outstanding balance included $482 of accrued interest.

(D) On June 8, 2017, the Company entered into a securities purchase agreement with Eagle Equities, LLC (“Eagle”), providing for the purchase of two convertible notes payable in the aggregate amount of $100,000 with the first note being in the amount of $50,000 and the second note being in the amount of $50,000 each accruing interest at 8% per annum and due on June 8, 2018. The first note was funded in cash. With respect to second note, Eagle issued a note payable to the Company in the amount of $50,000 to offset second note. The funding of second note is subject to certain conditions. Eagle is required to pay the principal amount of the note payable to the Company in cash and in full prior to executing any conversions under second note.

Eagle may convert the outstanding principal on the Eagle notes into shares of the Company’s common stock at the conversion price per share equal to 55% of the lowest daily closing bid with a twenty (20) day look back immediately preceding and including the date of conversion.   In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 45% instead of 55% while that “Chill” is in effect.

The Company has the right to repay the Eagle notes at any time during the first six months of the notes at a rate of 130% of the unpaid principal amount during the first 90 days, 135% of the unpaid principal amount between days 91 and 120, and 140% of the unpaid principal amount between days 121 and 180.  The Eagle Notes may not be prepaid after the 180^th day.

At June 30, 2017, the outstanding balance included $482 of accrued interest.

(E) On June 8, 2017, the Company closed a financing with JSJ Investments Inc. (“JSJ”), whereby the Company issued a convertible note payable dated June 7, 2017 in the aggregate principal amount of $50,000 with interest accruing at 8% per annum and is due on March 7, 2018.

JSJ may converted the note at any time into shares of Company’s common stock at a price equal a 45% discount to the lowest trading prices of the Company’s common stock as reported on the OTCQB for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. The Company may pay the JSJ Note in full, together with any and all accrued and unpaid interest, plus any applicable pre-payment premium at any time on or prior to the date which occurs 180 days after the issuance date hereof. Until the 90th day after the issuance date the Company may pay the principal at a cash redemption premium of 135%, in addition to outstanding interest, without the note holder’s consent. From the 91^st day though day 120, the amount to be repaid is 140% and from day 121 through the 180^th day, the amount to be repaid is 150%.

On June 29, 2017, the Company closed another financing with JSJ for $50,000 with the exact terms and the JSJ note describe above except the note is due on March 29, 2018.

At June 30, 2017, the outstanding balance included $378 of accrued interest.

Due to the potential adjustment in the conversion price associated with some of the convertible notes payable described above based on the Company’s stock price, the Company has determined that the conversion feature is considered a derivative liability. The embedded conversion feature was initially calculated to be $2,477,333 which are recorded as a derivative liability as of the date of issuance. The derivative liability was first recorded as a debt discount to the convertible notes payable up to the face amount of the convertible notes payable of $960,132 with the excess of $1,517,201 being recorded as a derivative expense. The debt discount of $960,132 is being amortized over the terms of the convertible notes payable. The Company recognized interest expense of $50,213 during the six months ended June 30, 2017 related to the amortization of the debt discount. The debt discount at June 30, 2017 is $909,919.

Since the note payable to the Company as described in items (C) and (D) above were issued to the Company as payment for a second convertible notes payable, the Company has not presented these notes receivable as an asset, but as an offset to the convertible notes payable balance.

A rollfoward of the convertible note from December 31, 2016 to June 30, 2017 is below:

Convertible notes, December 31, 2016	$	53,852
Issued for cash		200,000
Issued for accounts payable and accrued expenses		660,132
Increase due to accrued interest		22,259
Conversion to common stock		(25,217	)
Debt discount related to new convertible notes		(960,132	)
Amortization of debt discounts		(50,213	)
Convertible notes, June 30, 2017	$	1,107
Backend notes from Crown Bridge Partners and Eagle Equities		100,482
Balance of convertible notes net of debt discount at June 30, 2017		101,589