Quarterly report pursuant to Section 13 or 15(d)

Debentures and Notes Payable

v3.7.0.1
Debentures and Notes Payable
6 Months Ended
Jun. 30, 2017
Debt Disclosure [Abstract]  
Debentures and Notes Payable
Note 5 – Debentures and Notes Payable
 
 
 
June 30,
 
December 31,
 
 
 
2017
 
2016
 
Notes and debentures payable:
 
 
 
 
 
 
 
5.25% Insurance premium finance agreement, due June 2017
 
$
-
 
$
24,794
 
9% Promissory note due June 2017
 
 
25,341
 
 
25,341
 
4.75% Convertible debenture due December 2017
 
 
64,124
 
 
64,124
 
Total notes and debentures payable
 
$
89,465
 
$
114,259
 
 
 
 
 
 
 
 
 
Notes payable - related party:
 
 
 
 
 
 
 
14% Term loan due June 2018
 
$
213,993
 
$
213,993
 
14% Term loan due June 2018
 
 
576,500
 
 
440,500
 
14% Term loan due June 2018
 
 
400,582
 
 
399,832
 
7% Convertible promissory note due March 2019, net
 
 
32,967
 
 
-
 
7% Convertible promissory note due June 2019, net
 
 
1,233
 
 
-
 
Total notes payable - related party
 
 
1,225,275
 
 
1,054,325
 
Less current portion
 
 
(1,191,075)
 
 
-
 
Long term debt
 
$
34,200
 
$
1,054,325
 
 
5.25% Insurance premium finance agreement, due June 2017 
 
The Company made payments of $24,794 against the insurance premium financing obligation during the six months ended June 30, 2017.
 
9% Promissory note due June 1, 2017
 
On February 21, 2017, the Group received a letter from Golden State Equity Investors, Inc. (“Golden State”), the holder of the note, extending the maturity date of the 9% promissory note to June 1, 2017 with the condition that if the Reverse Split occurred by June 1, 2017, the maturity date of the note would be further extended to April 1, 2018. The Reverse Split did not occur until June 28, 2017 and the Group is in default on the 9% note. During default, the unpaid principal balance and unpaid accrued interest will accrue interest at 14% and all unpaid principal and interest may become immediately due under the terms of the note.
 
The Group is currently in discussions with Golden Gate to further extend the maturity date of the note and cure the default.
 
14% Term loan due June 2018, related party
 
Mr. Victor Keen, Co-Chairman of the Board of Directors, advanced an additional $136,000 during the six months ended June 30, 2017. As of June 30, 2017, an aggregate amount of $576,500 is due to Mr. Keen under the 14% term loan. As of June 30, 2017, accrued interest related to the 14% term loan amounted to $59,945 and interest expense was $39,427 for the six months ended June 30, 2017.
 
As of June 30, 2017, Carlton James North Dakota Limited (“CJNDL”), a company owned by Mr. Simon Calton, Co-Chairman of the Board of Directors, has advanced $614,575 to the Company under the terms of two loans, which are included in notes payable. As of June 30, 2017, accrued interest related to the CJNDL term loans due June 2018 amounted to $93,896 and interest expense was $43,105 during the six months ended June 30, 2017.
  
7% Convertible promissory note due March 2019
 
On March 30, 2017, the Company issued to Mr. Victor Keen, Co-Chairman of the Board of Directors, a 7% convertible promissory note in a principal amount of $250,000, due March 1, 2019 (“Maturity Date”). The promissory note shall automatically convert into eight percent (8%) of the fully diluted outstanding shares of common stock of the Company calculated after giving effect to (a) the exercise of all outstanding options, warrants or other rights to acquire shares of common stock of the Company, (b) the conversion of all outstanding convertible or exchangeable securities, and (c) after giving effect to the issuance of common stock upon conversion of this note (the “Conversion Shares”). The conversion shall not occur until both of the following two events shall have occurred (the “Conversion Event”): (i) the consummation of the Reverse Split by the Company as reflected in the Preliminary Information Statement filed with the Securities and Exchange Commission on March 7, 2017, and (ii) the conversion of all the Company’s issued and outstanding Series A Convertible Preferred Stock and Series B Convertible Preferred Stock into the Conversion Shares. If the Conversion Event has not occurred prior to the earlier to occur of the Maturity Date and the occurrence of an event of default, then this note shall not be automatically converted into the Conversion Shares and Mr. Victor Keen may elect, at his sole discretion, (i) to have the outstanding principal balance of this note converted into the Conversion Shares; or (ii) to declare the outstanding principal balance of this note, together with all accrued interest, be paid in accordance with the terms of the note. Such election may be made at any time on or following the Maturity Date or the occurrence of an event of default. This note is an unsecured obligation of the Company. The accrued interest and interest expense related to the $250,000 7% Convertible Promissory Note amounted to $4,599 during the six months ended June 30, 2017. The embedded conversion option was deemed to be a beneficial conversion feature because the active conversion price was less than the commitment date market price of the common stock. The dollar amount of the beneficial conversion feature is limited to the carrying value of the promissory note, so a $250,000 debt discount was recorded, with a corresponding credit to additional paid-in capital for the beneficial conversion feature. The debt discount will be amortized over the life of the debt and $32,967 was amortized during the six months ended June 30, 2017.
 
7% Convertible promissory note due June 2019
 
On June 21, 2017, the Company issued to Mr. Victor Keen, Co-Chairman of the Board of Directors, a 7% convertible promissory note in a principal amount of $100,000, due June 21, 2019. The promissory note shall automatically convert into four percent (4%) of the fully diluted outstanding shares of common stock of the Company calculated after giving effect to (a) the exercise of all outstanding options, warrants or other rights to acquire shares of common stock of the Company, (b) the conversion of all outstanding convertible or exchangeable securities, and (c) after giving effect to the issuance of common stock upon conversion of this note (the “Conversion Shares”). The conversion shall not occur until both of the following two events shall have occurred (the “Conversion Event”): (i) the consummation of the Reverse Split by the Company as reflected in the Preliminary Information Statement filed with the Securities and Exchange Commission on March 7, 2017, and (ii) the conversion of all of the Company’s issued and outstanding Series A Convertible Preferred Stock and Series B Convertible Preferred Stock into the Conversion Shares. If the Conversion Event has not occurred prior to the earlier to occur of the Maturity Date and the occurrence of an event of default, then this note shall not be automatically converted into the Conversion Shares and Mr. Victor Keen may elect, at his sole discretion, (i) to have the outstanding principal balance of this note converted into the Conversion Shares; or (ii) to declare the outstanding principal balance of this note, together with all accrued interest, be paid in accordance with the terms of the note. Such election may be made at any time on or following the Maturity Date or the occurrence of an event of default. This note is an unsecured obligation of the Company. The accrued interest and interest expense related to the $100,000 7% Convertible Promissory Note amounted to $175 during the six months ended June 30, 2017. The embedded conversion option was deemed to be a beneficial conversion feature because the active conversion price was less than the commitment date market price of the common stock. The dollar amount of the beneficial conversion feature is limited to the carrying value of the promissory note, so a $100,000 debt discount was recorded, with a corresponding credit to additional paid-in capital for the beneficial conversion feature. The debt discount will be amortized over the life of the debt and $1,233 was amortized during the six months ended June 30, 2017.