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5. NOTES PAYABLE
 6 Months Ended
Jun. 30, 2013
NOTES PAYABLE  
NOTES PAYABLE

Notes Payable – Related Parties

 

Funds are advanced to the Company from various related parties, including from Mr. Robert Lutz Jr. Other shareholders fund the Company as necessary to meet working capital requirements and expenses. The following is a summary of amounts due to related parties, including accrued interest separately recorded, as of June 30, 2013:

 

Related party   Nature of relationship   Terms of the agreement   Principal amount     Accrued interest  
                         
Lutz Investments, LP   Mr. Lutz is the CEO of the Company   Convertible note payable due March 31, 2012. The note is convertible at $0.19 per share. As of June 30, 2013, the note has not been converted and is past due.   $ 200,000     $ 23,165  
                         
Dr. Philip J. Rubinfeld   Mr. Rubinfeld is a member of the Board of Directors   See “Third Quarter 2012 Secured Subordinated Promissory Notes” As of June 30, 2013, $100,000 of this note remains due.     100,000       15,483  
                         
Araldo A. Cossutta   Mr. Cossutta is a member of the Board of Directors   See “Third Quarter 2012 Secured Subordinated Promissory Notes” As of June 30, 2013, $75,000 of this note remains due.     75,000       11,612  
                         
MAH Holding, LLC   MAH Holding, LLC has provided previous lines of credit to affiliates of WMT.   Unsecured note with interest accrued at 10% per annum, due on demand.     40,620       8,667  
                         
Total           $ 415,620     $ 58,927  

 

Notes Payable

 

The following is a summary of amounts due to unrelated parties, including accrued interest separately recorded, as of June 30, 2013:

 

Note payable   Terms of the agreement   Principal amount     Discount     Principal net of discount     Accrued interest  
                                     
March 4, 2011 Note Payable   $223,500 note payable; (i) interest accrues at 13% per annum; (ii) maturity date of September 4, 2011; (iii) $20,000 fee due at maturity date with a $1,000 per day fee for each day the principal and interest is late. This note is currently the subject of litigation (see Note 3 “Significant Transactions -"Litigation)   $ 223,500       -     $ 223,500     $ 44,147  
                                     
Purchase Order Financing Agreement   $50,000 note payable; (i) interest accrues at 10% per annum; (ii) proceeds used to purchase inventory; (iii) lender will be reimbursed $25 per gram as the inventory is sold. As of June 30, 2013 the lender is due $40,500 of sales proceeds.     38,822       -       38,822       2,797  
                                     
Third Quarter 2012 Secured Subordinated Promissory Notes   Seventeen notes (including two with related parties mentioned above) in the original aggregate principal amount of $1,055,000; (i) 5% interest due on maturity date; (ii) maturity date of October 12, 2012; (iii) after the maturity date interest shall accrue at 18% per annum and the Company shall pay to the note holders, on a pro rata basis, an amount equal to twenty percent of the sales proceeds received by the Company and its subsidiary, WCI, from the sale of surgical powders, until such time as the note amounts have been paid in full. As of June 30, sixteen of these notes remain due in the aggregate principal amount of $1,035,000, of which thirteen are with unrelated parties. Additionally, $78,980 of surgical sales proceeds have not been remitted to the note holders.     860,000       -       860,000       133,154  
                                     
September 19, 2012 Promissory Note   $20,000 note payable; (i) interest accrues at 10% per annum; (ii) maturity date of December 31, 2012; (iii) warrant to purchase 20,000 shares of common stock at an exercise price of $0.15 per share to be issued upon default. As of December 31, 2012 this note was not paid and the 20,000 warrants were issued to the note holder. As of June 30, 2013, the $20,000 balance is past due.     20,000       -       20,000       1,562  
                                     
September 28, 2012 Promissory Note   $51,300 note payable (i) interest accrues at 10% per annum; (ii) maturity date of December 31, 2012; (iii) default interest rate of 15% per annum. As of June 30, 2013, this note is past due.     51,300       -       51,300       5,180  
                                     
June 21, 2011 Note   Convertible promissory note in the principal amount of $560,000; (i) interest accrues at 12% per annum; (ii) maturity date of June 21, 2015; (iii) upon closing the Company issued to the lender 100,000 shares of Common Stock valued at $60,000 and two warrants to purchase 250,000 shares of common stock each, with exercise prices of $0.50 $1.00; (iv) the debt is convertible at a 30% discount on the fair market value of the stock. The Company measured the fair value of the warrants and the beneficial conversion feature of the note and recorded a discount against the principal of the note. (see Note 3 "Significant Transaction - Forbearance Agreement")     200,000       -       200,000       -  

  

March 2012 Convertible Notes   Three convertible notes in the principal amount of $25,000, $50,000 and $100,000 respectively; (i) issued between March 3 and March 22, 2012; (ii) convertible at $0.19 per share; (iii) interest accrues at 5% per annum; (iv) interest accrues at 9% per annum after the due dates between March 31 and June 30, 2012. As of the date of this filing these notes are past due.     175,000       -       175,000       18,699  
                                     
Second Quarter 2012 Convertible Notes   Two $25,000 notes; (i) issued on April 3 and April 23, respectively; (ii) convertible at $0.19 per share; (iii) interest accrues at 5% per annum; (iv) interest accrues at 9% per annum after the due dates of April 30 and June 30, 2012, respectively. On September 20, 2012, 222,420 shares of Common Stock were issued in conversion of the April 23 note. As of the date of this filing the April 3 note is past due.     25,000       -       25,000       2,760  
                                     
May 30, 2012 Convertible Note   Note in the principal amount of up to $275,000 including an approximate original issue discount of 10%; (i) maturity date one year from the effective date (ii) convertible at the lesser of $0.19 or a 30% discount on the fair market value of the Company's common stock; (iv) one time interest charge of 5% will be applied if the note is not repaid within the first 90 days.     102,673       (50,718 )     51,955       2,750  
                                     
February 19, 2013 Convertible Notes   Two $250,000 promissory notes; (i) due upon the Company’s achievement of certain revenue targets; (ii) interest accrues at 10% per annum (iii) convertible at the option of the holder into shares of the Company’s common stock at a conversion price of $.07 per share, or into an equivalent number of shares of the Company’s Series C Preferred Stock.     500,000       -       500,000       18,082  
                                     
May 13, 2013 Promissory Note   Note in the principal amount of up to $142,000; (i) interest accrues at 10% per annum; (ii) proceeds used to purchase inventory; (iii) maturity date of May 13, 2015; (iv) lender will be reimbursed all net revenues collected on inventory purchased with note proceeds on a monthly basis until the note is paid in full.     71,357       -       71,357       874  
                                     
June 19, 2013 Promissory Note   $50,000 note payable; (i) interest accrues at 9% per annum; (ii) the principal is due and payable as follows: (a) $5,000 each on August 19, 2013 and September 19, 2013; and (b) $10,000 on October 19 and November 19, 2013 and (c) $20,000 on December 19, 2013, the maturity date; (iii) the Company will issue to Lender a five-year warrant to purchase a total of 225,000 shares of common Stock at a price of $0.09 per share. Additionally, the Company will issue warrants to purchase 375,000 common shares at $0.09 exercisable only upon an event of default.     50,000       -       50,000       150  
                                     
June 24, 2013 Promissory Note   $40,000 note payable; (i) interest accrues at 10% per annum; (ii) the principal is due and payable as follows: (a) $5,000 each on July 25, 2013 and August 25, 2013; and (b) $10,000 each on September 25, 2013, October 25, 2013, November 25, 2013(the maturity date); (iii) the Company will issue to Lender a five-year warrant to purchase a total of 175,000 shares of common Stock at a price of $0.09 per share.     40,000       -       40,000       78  
                                     
Total       $ 2,357,652     $ (50,718 )   $ 2,306,934     $ 230,233  

 

2010 Debentures

 

On March 30, 2010, the Company entered into a Securities Purchase Agreement and issued Debentures in the aggregate principal amount of $695,000. The debentures accrued interest at 6% per annum and could be converted into Common Stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion. In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $297,857 was calculated as the total value of the beneficial conversion feature, which was amortized over the term of the debt. In addition, debt issuance costs of $102,850 were deferred and amortized over the term of the debt. In April of 2012, 4 million shares of common stock were issued to Commercial Holding, AG, a related party and holder of the debentures, in conversion of the $695,000 of debentures and all remaining accrued interest payable.

 

2012 Debentures

 

On March 27, 2012, the Company entered into a Securities Purchase Agreement and sold $400,000 of convertible debentures with a maturity date of March 27, 2015, to an unrelated party for $360,000. The Debentures, which accrue interest at 6% per annum, may be converted into Common Stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion. The Securities Purchasae Agreement includes restricitons to prevent conversion should it result in the debenture holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock. Additionally, the Securities Purchase Agreement entitled the purchaser to 200,000 shares of Common Stock

 

In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $171,429 was calculated as the total value of the beneficial conversion feature, which is being amortized over the term of the debt. Additionally, a discount of $35,676 was allocated to 200,000 shares of Common Stock based on the relative fair market value of the stock and convertible debt at the time of the agreement.

 

In the fourth quarter of 2012, the debenture holder elected to convert a total of $50,000 in principal into 1,387,754 shares of Common Stock. In 2013 the holder converted a total $125,000 of principal into 3,535,352 shares of Common Stock. A pro rata share of the discount associated with the debentures was expensed with each issuance of Common Stock.

 

The unamortized discount balance of the debentures outstanding at June 30, 2013 is $78,396 for a total debenture balance, net of discount, of $142,652. In addition, total debt issuance costs of $115,350 have been deferred and are being amortized over the term of the debt. The unamortized balance of deferred loan costs and accrued interest payable at June 30, 2013 is $4,653 and $26,934, respectively.