Notes payable
Notes payable at March 31, 2014 and December 31, 2013 consisted of the following:
Final Maturity
Interest Rate
March 31,
2014
December 31,
2013
C. Smith
9/18/11
8 % $ - $ 14,850
D. Radcliffe
9/18/11
8 % - 49,500
L. Kaswell
9/18/11
8 % - 99,000
M. Trokel
9/18/11
8 % - 49,500
Radcliffe Investment Partners I
9/18/11
8 % - 34,650
Morchester International Limited
7/14/12
15 % 35,429 35,429
Morchester International Limited
7/14/12
8 % 10,000 10,000
Total
$ 45,429 $ 292,929
On December 9, 2011, Elray entered into an Amended Splitrock Agreement whereby the Company acquired certain assets and liabilities of Splitrock. As part of the liabilities assumed in terms of the Amended Splitrock Agreement, the Company assumed notes payable of $292,929 bearing interest of 8% or 15% per annum. All of these notes are past due and currently in default.
On January 27, 2014, the court granted an approval of the settlement agreement with Tarpon whereby the Company would issue shares to Tarpon for resale to pay off certain liabilities. Principals of $247,500 and associated accrued interest acquired by Tarpon were reclassified to settlement payable as of March 31, 2014.
Convertible notes payable
Convertible notes payable, net of discounts, at March 31, 2014 and December 31, 2013 consisted of the following:
March 31, 2014
December 31, 2013
Principal
Unamortized discount
Principal, net of discounts
Principal
Unamortized discount
Principal, net of discounts
a. Alan Binder
$ - $ - $ - $ 25,000 $ - $ 25,000
b. JSJ Investments, Inc.
10,670 - 10,670 38,600 - 38,600
c. JSJ Investments, Inc.
75,000 (66,896 ) 8,104 - - -
d. Asher Enterprises, Inc.
- - - 37,500 (15,492 ) 22,008
e. Asher Enterprises, Inc.
- - - 37,500 (20,989 ) 16,511
f. Asher Enterprises, Inc.
27,500 (12,349 ) 15,151 27,500 (21,689 ) 5,811
g. Asher Enterprises, Inc.
42,500 (23,754 ) 18,746 42,500 (38,298 ) 4,202
h. Asher Enterprises, Inc.
32,500 (24,980 ) 7,520 - - -
i. Asher Enterprises, Inc.
32,500 (28,528 ) 3,972 - - -
j. GEL Properties, LLC
50,000 (25,190 ) 24,810 50,000 (42,235 ) 7,765
k. LG Capital Funding, LLC
50,000 (25,094 ) 24,906 50,000 (42,075 ) 7,925
l. LG Capital Funding, LLC
37,000 (34,944 ) 2,056 - - -
m. Virtual Technology Group, Ltd
1,500,000 (1,135,728 ) 364,272 - - -
n. Gold Globe Investments Ltd
2,800,000 (2,122,026 ) 677,974 - - -
o. Rousay Holdings Ltd.
- - - 1,290,000 - 1,290,000
p. ASC Recap
132,000 (91,160 ) 40,840
Total
$ 4,789,670 $ (3,588,649 ) $ 1,201,021 $ 1,598,600 $ (180,778 ) $ 1,417,822
9
The table below presents the changes of debt discount during the three months ended March 31, 2014:
December 31, 2013
$ 180,778
Addition
3,776,742
Amortization
(368,871 )
March 31, 2014
$ 3,588,649
a. On December 9, 2011, as a result of the Splitrock transaction, the Company assumed a $25,000 convertible note. The note was due on August 4, 2012 with 10% annual interest. The note was convertible to Splitrock’s common stock at $0.10 per share prior to December 9, 2011 and is now convertible to 7,545 shares of the Company’s common stock. The note was acquired by Tarpon on January 27, 2014. See Note 3.
b. On May 31, 2013, the Company entered into a convertible promissory note with JSJ for $50,000 (the "Third JSJ Note"). The note bears interest at 10% and matured on December 2, 2013. From November 31, 2013 to November 31, 2014, the note holder has the option to convert the note to common shares in the Company at a discount of 50% of the average closing price over the last 120 days prior to conversion, or the average closing price over the last seven days prior to conversion. During the three months ended March 31, 2014, JSJ converted $27,930 of its third note to 147,000 shares of common stock.
c. On January 30, 2014, the Company entered into a convertible promissory note with JSJ for $50,000 cash (the "Fourth JSJ Note"). The note bears interest at 10% and matured on January 30, 2015. Upon the maturity, the note has a cash redemption premium of 150% of the principal amount. The note is convertible to the Company’s common shares at a discount of 50% of the average of the three lowest bids on the twenty days before the date this note is executed, or 50% of the average of the three lowest bids during the twenty trading days preceding the delivery of any conversion notice, whichever is lower.
d. On July 15, 2013, the Company entered into a convertible promissory note with Asher for $37,500 (the "Seventh Asher Note"). The note bears interest at 8% and matures on April 17, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 45% of the average lowest three closing bid prices during the ten trading days prior to the conversion date. During the three months ended March 31, 2014, the Company issued 163,884 shares of common stock for the conversion of the Seventh Asher Note in the amount of $37,500 and accrued interest of $1,500.
e. On August 28, 2013, the Company entered into a convertible promissory note with Asher for $37,500 (the "Eighth Asher Note"). The note bears interest at 8% and matures on May 30, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing bid prices during the ten trading days prior to the conversion date. During the three months ended March 31, 2014, the Company issued 370,940 shares of common stock for the conversion of the Eighth Asher Note in the amount of $37,500 and accrued interest of $1,500.
f. On October 24, 2013, the Company entered into a convertible promissory note with Asher for $27,500 (the "Ninth Asher Note"). The note bears interest at 8% and matures on July 28, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing bid prices during the ten trading days prior to the conversion date.
g. On November 21, 2013, the Company entered into a convertible promissory note with Asher for $42,500 (the "Tenth Asher Note"). The note bears interest at 8% and matures on August 25, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing bid prices during the ten trading days prior to the conversion date.
10
h. On January 9, 2014, the Company entered into a convertible promissory note with Asher for $32,500 (the "Eleventh Asher Note"). The note bears interest at 8% and matures on October 13, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing bid prices during the ten trading days prior to the conversion date.
i. On February 20, 2014, the Company entered into a convertible promissory note with Asher for $32,500 (the "Twelveth Asher Note"). The note bears interest at 8% and matures on November 23, 2014. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. Asher has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing bid prices during the ten trading days prior to the conversion date.
j. On November 11, 2013, the Company entered into a convertible promissory note with GEL Properties LLC ("GEL") for $50,000. The note bears interest at 8% and matures on August 11, 2014. GEL has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 55% of the average lowest three closing bid prices during the ten trading days prior to the conversion date.
k. On November 11, 2013, the Company entered into a convertible promissory note with LG Capital Funding LLC ("LG") for $50,000. The note bears interest at 8% and matures on August 11, 2014. LG has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 55% of the average lowest three closing bid prices during the ten trading days prior to the conversion date.
l. On March 6, 2014, the Company entered into a convertible promissory note with LG Capital Funding LLC (the "Second LG") for $37,000. The note bears interest at 8% and matures on March 6, 2015. LG has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the average lowest three trading prices during the fifteen trading days prior to the conversion date.
m. On January 23, 2014, the Company entered into a convertible promissory note with Virtual Technology Group LLC ("VTG") for $1,500,000. The note bears no interest and matures on January 23, 2017. An initial dicount of $290,323 was recorded on the issuance date. VTG has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 100% of the average of the closing bid prices for the seven trading days prior to the conversion date when the Company’s shares are traded in the OCTQB or during the ten trading days prior to the conversion date when the Company’s shares are traded in other exchange.
n. On January 23, 2014, the Company entered into a convertible promissory note with Gold Globe Investments Limited for $2,800,000. The note bears no interest and matures on January 23, 2017. An initial discount of $541,935 was recorded on the issuance date. GGIL has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 100% of the average of the lowest three trading prices during the seven trading days prior to the conversion date when the Company’s shares are traded in the OCTQB or during the ten trading days prior to the conversion date when the Company’s shares are traded in other exchange.
o. On April 25, 2012, the Company entered into a promissory note with Rousay Holdings Ltd. (“Rousay”) for $10,000,000 (“Original Rousay Note”). During year 2012, $2 million of the promissory note had been funded and $710,000 has been repaid. On October 8, 2012, the Company issued a new promissory note to Rousay to replace the Original Rousay Note, where the face of the note is $1,290,000. The new note was due on April 26, 2013 with an interest rate of 20% per annum. On the event of default, interest rate increases to 25% per annum. On April 26, 2013, Rousay has an option of receiving an amount of restricted common stock of the Company equal to 10% of the then outstanding and issued common stock of the Company in lieu of payment of principal and interest. The note was acquired by Tarpon on January 27, 2014. See Note 3.
p. On February 3, 2014, the Company entered into a convertible promissory note with ASC Recap LLC (“ASC”) in the amount of $132,000. The promissory note was issued in terms of a court granted and approved settlement agreement with Tarpon on January 27, 2014. See Note 3. The note bears interest at 10% and matures on August 3, 2014. ASC has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 50% of the lowest closing bid price in the 20 trading days prior to the conversion date. For interest that accrues pursuant to this note, the conversion price shall be at $0.001 regardless of the trading price. The conversion price should also be adjusted if the Company issued any shares, prior to the conversion of the note, at a price lower than the conversion price.
11
Due to the conversion feature of JSJ, Asher, GEL, LG, VTG, ASC and GGIL notes, the actual number of shares of common stock that would be required if a conversion of the note was made through the issuance of common stock cannot be predicted, and the Company could be required to issue an amount of shares that may cause it to exceed its authorized common share amount. As a result, the conversion feature requires derivative accounting treatment and has been bifurcated from the note and is “marked to market” each reporting period through the statements of operations.
The conversion feature of the convertible notes issued during the three months ended March 31, 2014 was valued at $4,601,062 on the issuance date. As a result, these notes were fully discounted and the fair value of the conversion feature in excess of the principal amount of the note of $1,681,578 was expensed immediately as additional interest expense.
Loans from shareholders
On September 5, 2008, Elmside Pty Ltd, a company related to a former director, agreed to an interest free loan of $55,991 to the Company on an as-needed basis to fund the business operations and expenses of the Company until December 9, 2011, the due date of the loan. The note is in default. During the three months ended March 31, 2014, the Company received $2,500 from its officer to open a new bank account.
As of March 31, 2014 and December 31, 2013, loans from Elmside, a shareholder, were $55,991. The loans are currently in default.
As of March 31, 2014 and December 31, 2013, the Company had accounts payable of $870,453 and $709,984, respectively, to its chief executive officer and a company owned by the chief executive officer for reimbursement of expense, compensation, and liabilities assumed from Splitrock.
As of March 31, 2014 and December 31, 2013, the Company had accounts payable of $31,500 and $22,500 to Jay Goodman, son of the Company’s chief executive officer, for assisting the Company with data segmentation, financial and statistical services.
On January 1, 2014, the Company issued 51,032 shares of its common stock to settle accounts payable of $23,000 to Portspot Consultants Limited. These shares were valued at $26,782 based on the market price on the issuance date. The Company recorded a loss of $3,782 related to the settlement.
On January 20, 2014, the Company issued 100,000 shares of its common stock to Gregory Caputo and Donald Radcliffe for consulting services over the prior six months. These shares were valued at $61,000 based on the market price on the issuance date.
14
On January 25, 2014, the Company entered into an acquisition agreement with BetTek Inc. to acquire intellectual property and know how to be utilized to build a virtual online horse racing product and other allied products. The Company issued 106,650 shares of its common stock for the acquisition. The closing of this transaction is upon the Company’s satisfaction of the product and the product is currently under construction. The Company valued these shares based on the market price on the issuance date and recorded $73,589 subscription receivable for the shares issued.
During the three months ended March 31, 2014, the Company issued 681,824 shares of common stock for the conversion of notes (see Note 5).
During the three months ended March 31, 2014, the Company issued Tarpon 1,301,000 shares of its common stock, respectively according to the settlement agreement discussed in Note 3. The shares were valued at $437,410 based on the market price on the issuance date. $188,846 net proceeds from the sale were used to pay the original creditors of the claims Tarpon acquired. The remaining $248,623 was recorded as loss on settlement.
On March 24, 2014, the Company entered into a convertible promissory note with KBM Worldwide Inc. ("KBM"), an affiliate of Asher, for $32,500. The principal was received and recorded on April 16, 2014. The note bears interest at 8% and matures on January 2, 2015. In the event that the note remains unpaid at that date, the Company will pay default interest of 22%. KBM has the right after a period of 180 days to convert the balance outstanding into the Company’s common stock at a rate equal to 40% of the average lowest three closing bid prices during the ten trading days prior to the conversion date.
On April 15, 2014, the Company entered into a convertible promissory note with Vista Capital Investments, LLC ("Vista") for $250,000. The note has an original issue discount of $25,000. The note bears interest at 12% and matures 2 years from the date of each payment of the principal from Vista. In the event that the note remains unpaid at the maturity date, the outstanding balance shall immediately increase to 120% of the outstanding balance. Vista has the right to convert the outstanding balance into the Company’s common stock at a rate equal to the lesser of $0.008 or 60% of the lowest trade occurring during the twenty-five consecutive trading days preceding the conversion date. $25,000 was received and recorded on April 23, 2014.
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