Quarterly report pursuant to Section 13 or 15(d)

NOTES PAYABLE

v3.5.0.2
NOTES PAYABLE
6 Months Ended
Jun. 30, 2016
Debt Disclosure [Abstract]  
NOTES PAYABLE

NOTE 8 – NOTES PAYABLE

 

Notes payable consists of:

 

    June 30,
2016
    December 31,
2015
 
Southwest Farms (Note 3)   $ 3,617,548     $ 3,645,163  
East West Secured Development (Note 3)     515,633       675,093  
Washington Property (Note 6)     199,000       208,605  
Investment funds (Note 8)     1,257,500        
                 
Financial Freedom, LLC     62,500        
      5,652,181       4,528,861  
Less discounts     (323,924 )      
Plus premium     10,000       16,667  
                 
      5,338,257       4,545,528  
Less current maturities     1,294,051       256,897  
                 
    $ 4,044,206     $ 4,288,631  

 

Maturities on Notes Payable are as follows:

 

Years ending:      
December 31, 2016   $ 1,045,988  
December 31, 2017     287,643  
December 31, 2018     4,004,626  
    $ 5,338,257  

 

The Company entered into a Securities Purchase Agreement dated May 20, 2016 (the “SPA”) with an investor (the “Investor”) pursuant to which it issued to the Investor a Convertible Promissory Note (the “Note”) in the principal amount of $1,242,500 that matures on July 20, 2017 and earns interest at the rate of 10% per annum. The Note carries an original issuance discount of $112,500 and the Company agreed to pay $5,000 in legal fees for the Investor. In exchange for the Note, the Investor (1) paid to the Company $125,000 less $6,250 in broker fees paid by the Company, and (2) issued to the Company eight (8) secured promissory notes in the principal amount of $125,000 each (each, a “Investor Note” and collectively the “Investor Notes”). This amount is included with Investment funds in schedule above.

 

The Company must begin repaying principal and interest on funded portions of the Note beginning 180 days after the date of the Note, and each month thereafter for a total period of 10 months, in fixed amounts of $124,250 per month. The Company has a right to prepay the total outstanding balance of the Note at any time (so long as it is not in default under the Note) in cash equal to 125% of the outstanding balance of the Note. Furthermore, for a period of sixty days from the date of entry into the Note, a third party has the right to prepay the outstanding balance of the Note in cash equal to 130% of the outstanding balance of the Note.

 

The notes become convertible into commons shares of the Company's stock upon an Event of Default, as set forth in the terms of the SPA. The conversion price shall be 50% of the lowest closing bid price during the twenty trading days immediately preceding the conversion. This conversion feature was considered to be a contingent conversion feature, and therefore the conversion feature would not be bifurcated and accounted for as a derivative, until such time as and if the Company is in an event of default. 

 

In connection with any Event of Default by the Company, the Investor may accelerate the Note with the outstanding balance becoming immediately due and payable in cash at 125% of the outstanding balance. Furthermore, the Investor may elect to increase the outstanding balance by applying a 125% “default effect” (up to two applications for two defaults) without accelerating the outstanding balance, in which event the outstanding balance shall be increased as of the date of the occurrence of the applicable event of default. Furthermore, following the occurrence of an event of default interest shall accrue on the outstanding balance beginning on the date the applicable event of default occurring at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law.

 

In connection with entry into the SPA, the Company agreed to reserve 300% of the shares into which the Note can be converted for the Investor.

 

The Investor may, with the Company’s consent, prepay, without penalty, all or any portion of the outstanding balance of the Investor Notes at any time prior to the Investor Note Maturity Date. Notwithstanding the foregoing, beginning on the date that is 90 days from the date of the issuance of the Note, and then on the 6-month anniversary of the date of entry into the Note and monthly thereafter for a total of eight payments, the Investor shall be obligated to prepay one of the eight Investor Notes at each such occurrence, if at the time of such occurrence: (a) no event of default under the Note has occurred; (b) the average daily dollar volume of the Common Stock on its principal market for the twenty (20) trading days is greater than $55,000.00; (c) the market capitalization of the Common Stock on the date of the occurrence is greater than $3,000,000.00; and (d) the share reserve described below remains in place at the required thresholds.

 

The Company also made extensive representations and warranties relating to the transaction.

 

To date, no amounts have been received by the Company against the eight Investor Notes.

 

On April 6, 2016, the Company entered into a Promissory note for $85,000, which was issued with a $2,500 premium, and bears interest at 0.0%. The proceeds were to be used by the Farm, to pay for water usage. Additionally, the Company issued 600,000 of the Company's restricted common stock to the holder. The shares were valued at the market value of the common shares of the Company on the date of the issuance of the note. The payment terms called for $40,000 to be paid on or before April 21, 2016, $20,000 to be paid on or before May 6, 2016, and the final $27,500 to also be paid on or before May 6, 2016. The Note also allowed for the extension of the maturity date by 30 days, at the Company's request, in exchange for an additional $2,500 payment. The note and the $2,500 extension payment were paid during July, 2016.

 

Notes payable, related parties, consists of:

 

    June 30,
2016
    December 31,
2015
 
Directors Notes   $ 289,866     $  
                 
Less discounts     (12,000 )        
                 
      277,866          
                 
Less current maturities     (277,866 )        
                 
    $      $    

 

Maturities on Notes payable, related parties, are as follows:

 

Years ending:      
December 31, 2016   $ 39,166  
December 31, 2017     250,700  
    $ 289,866  

 

On June 8, 2016, the Company issued Promissory Notes (the "Directors Notes"), in the amount of $250,700, to all the directors in exchange for various amounts outstanding for fees and reimbursements incurred during December 2015 and April 2016. The Notes have a term of six months and bear interest at 8% until the note is paid in full. The Directors Notes were each issued with a warrant for fifty percent of the face amount of the note, with an exercise price of $0.01 and exercisable for three years. The Company estimated the fair value of the warrants based on a Black Scholes valuation model. The warrants were determined to have a fair value of $12,000, calculated with the Black Sholes Merton model, with the following key valuation assumptions: estimated term of three years, annual risk-free rate of .93%, and annualized expected volatility of 172%. The $12,000 fair value was recognized as a debt discount and is being amortized over the six month term of the Directors Notes.