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NOTES PAYABLE
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Jun. 30, 2011
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Dec. 31, 2010
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| NOTES PAYABLE |
NOTE 5. - NOTES PAYABLE
Notes
payable to shareholders consisted of the following:
Note Dated October 28, 2008 - On October 28, 2008, the
Company issued a note payable to a third party in the amount of
$325,000. The interest rate on the note was 10% and the outstanding
principal and interest was due and payable on October 28, 2010, the
maturity date.
This
note matured and remained outstanding at December 31, 2010;
however, in January and February 2011 this note together with the
$30,000 note dated May 20, 2009 (described below), and all the
related accrued interest of $77,300 were satisfied by: (i)
conversion of $150,000 into equity in connection with the January
25, 2010 Private Placement; (ii) a cash payment of $142,300; and
(iii) a new note dated January 25, 2011 (see Note 6) payable in the
amount of $140,000.
Note Dated November 11, 2008 - On November 11, 2008, the
Company issued a note payable to a shareholder in the amount of
$325,000. The interest rate on the note was 10%
and the outstanding principal and interest was due and payable on
November 11, 2010, the maturity date. This note was
extended as set forth below and remained outstanding at December
31, 2010.
The
extended maturity date on the note was January 10, 2011 and the
interest rate during the extension period was
15%. Following the maturity of this note on
January 10, 2011, the principal amount of $325,000 was converted to
equity in connection with the January 25, 2011 Private Placement
and the accrued interest was paid in cash.
Note Dated May 20, 2009 (unsecured)
- On May 20, 2009, the Company issued a note payable in the amount
of $30,000 to the same third party that was issued the October 28,
2008 note. The interest rate on the note was 10% and the
outstanding principal and interest was due and payable on May 19,
2010, the maturity date. The $30,000 in principal and
accrued interest remained outstanding as of December 31, 2010. This
note was satisfied in January and February 2011 together with the
October 28, 2008 note as described previously.
Note Dated January 1, 2008 (unsecured) - The Company
issued a note to a member on January 1, 2008 payable in the amount
of $100,014. The interest rate on the note was 7%; the
interest and principal were due on January 15, 2011, the maturity
date, and were paid in cash in January 2011.
Note Dated September 1, 2010 - On September 1, 2010, the
Company issued a note payable to a member in the amount of $35,000.
The interest rate on the note was 15%, and, pursuant to an
extension, the interest and principal were due on January 25,
2011, the extended the maturity date. The note was paid
in cash in January 2011.
Notes Dated October 4, 2010 (unsecured) - The Company
issued notes payable to seven members in the aggregate amount of
$150,000. The interest rate on each of these notes was 15%, and the
interest and principal were due on the maturity date of January 31,
2011. These notes were satisfied in January 2011 by conversion of
$87,367 to equity in connection with the January 25, 2011 Private
Placement and by payment of $62,633 in cash.
Note Dated December 29, 2010 (unsecured) – The
Company issued a note payable to a member in the amount of
$100,000. The interest rate on this note was 15%, and the interest
and principal were due on the maturity date of January 29, 2011.
The note was paid in cash in January 2011.
Note Payable to Repurchase Common Shares (unsecured)
- On December 31, 2010, the Company agreed to repurchase 51,637
common shares previously issued to a member in exchange for a
$35,019 note, which $30,629 remained unpaid as of December 31,
2010. The interest rate on the note was 7% and the outstanding
principal and interest were due and payable on September 30, 2010,
the maturity date. The note remained unpaid at the
maturity date; the outstanding principal balance and accrued
interest were paid in cash in February 2011.
Note Dated June 30, 2011 (unsecured) – The
Company issued a note payable to an officer, who is also a
director, in the amount of $150,000. The funds were
received on July 7, 2011, and accordingly the liability was
recorded as of this date. The interest rate on the note is 12% and
outstanding principal and accrued interest are due and payable on
August 30, 2011.
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NOTE 5. - NOTES PAYABLE
Notes
payable members, net of unamortized discount:
Note Dated
October 28, 2008 - On October 28, 2008, the Company issued a
note payable to a third party in the amount of $325,000, and a
warrant to purchase 371,006 Membership Units at less than $.0001
per unit. The warrant was valued at $129,500 and recorded as
a discount to the note payable and is being amortized over the term
of the note which significantly adjusts the effective interest
rate. The weighted average annual effective rate on the note is
41%. The intrinsic value of the warrant at the time of issuance was
determined to be $215,540; the debt discount recorded was based on
allocating the $325,000 in transaction proceeds proportionally
between the note and the warrant. The note bears interest at a rate
of 10% and the outstanding principal and interest was due and
payable on October 28, 2010, the maturity date. As of
December 31, 2010, the outstanding principal and unamortized debt
discount amounted to $325,000 and $0, ($325,000 and $53,959 –
December 31, 2009), respectively. The warrant was exercised
in 2010. The note is guaranteed by a related party, Virgil
Properties, LLC (“Virgil”), which is owned by two
members of the Company. The note is secured by a mortgage on
property owned by Virgil. Virgil received 148,402 warrants as
consideration for this guarantee. These warrants were valued at
$86,216, recorded as a deferred financing and amortized over the
term of the loan. On December 30, 2009, Virgil agreed to rescind
these warrants. In consideration of the rescission of warrants, the
Company agreed to convert certain cash advances totaling $271,992
from the two members of the Company that own Vigil into 1,009,106
Membership Units of the Company.
This
note matured and remained outstanding at December 31, 2010;
however, in January and February 2011 this note together with the
$30,000 note dated May 20, 2009, and all the related accrued
interest were satisfied by: (i) conversion of $150,000 into equity
in connection with the January 25, 2011 private placement (ii) a
cash payment of $142,300 and (iii) a new note for
$140,000.
Note Dated November 11, 2008 - On November 11, 2008, the
Company issued a note payable to a member in the amount of
$325,000, and a warrant to purchase 371,006 Membership Units at
less than $.0001 per unit. The warrant was valued at $129,500
and was recorded as a discount to the note payable and is being
amortized over the term of the note which significantly adjusts the
effective interest rate. The weighted average annual effective rate
on the note is 41%. The intrinsic value of the warrant at the time
of issuance was determined to be $215,540; the debt discount
recorded was based on allocating the $325,000 in transaction
proceeds proportionally between the note and the warrant. The
note bears interest at a rate of 10% and the outstanding principal
and interest was due and payable on November 11, 2010, the maturity
date. As of December 31, 2010, the outstanding principal
and unamortized debt discount amounted to $325,000 and $0,
($325,000 and $53,959 – December 31, 2009), respectively. The
warrant was exercised in 2010. The note is guaranteed by a related
party, Virgil, which is owned by two members of the
Company.
The
note was amended to extend the maturity sixty days to January 10,
2011 and increase the interest rate to 15% during the extension
period. Following the maturity of this note in January
2011, the principal amount of $325,000 was converted to equity in
connection with the January 25, 2011 private placement and the
accrued interest was paid in cash.
Note Dated May 20, 2009 (unsecured)
- On May 20, 2009, the Company issued a note payable in the amount
of $30,000 and a warrant to purchase 185,503 Membership Units at
less than $.0001 per unit to the same third party that was issued
the October 28, 2008. The warrant was valued at $18,132 and
recorded as a discount to the note payable and is being amortized
over the term of the note, which significantly adjusts the
effective interest rate. The weighted average annual effective rate
on the note is 178%. The intrinsic value of the warrant at the time
of issuance was determined to be $45,833; the debt discount
recorded was based on allocating the $30,000 in transaction
proceeds proportionally between the notes and the warrant.
The note bears interest at a rate of 10% and the outstanding
principal and interest was due and payable on May 19, 2010, the
maturity date. The $30,000 in principal and accrued interest
remained outstanding as of December 31, 2010. As of December 31,
2010, the outstanding principal and unamortized debt discount
amounted to $30,000 and $0, ($30,000 and $6,233 – December
31, 2009) respectively. The warrant was exercised in 2010.
This note was satisfied in January and February 2011 together with
the October 28, 2008 note as described previously.
Note Dated January 1, 2008 (unsecured) - The Company
issued a note to a member as of January 1, 2008 for $100,014.
The note bears interest at a rate of 7%, and interest and principal
are due on the maturity date of January 15, 2011 and was paid in
cash in January 2011. The note is subordinated to senior
debt, which consists of amounts payable on the bank demand
loan.
Note Dated September 1, 2010 - The Company issued a note
payable to a member in the amount of $35,000. The note bears
interest at a rate of 15%, and interest and principal are due on
the maturity date of November 1, 2010. The note was amended to
extend the maturity to January 25, 2011. The note is
guaranteed by a member of the Company. The note was paid in cash in
January 2011.
Notes Dated October 4, 2010 (unsecured) -The Company
issued notes payable to seven members in the aggregate amount of
$150,000. The notes bears interest at a rate of 15%, and interest
and principal are due on the maturity date of January 31, 2011.
These notes were satisfied in January 2011 by conversion to equity
in connection with the January 25, 2011 private placement and by
payment of cash.
Note Dated December 29, 2010 (unsecured) - The Company
issued a note payable to a member in the amount of $100,000. The
note bears interest at a rate of 15%, and interest and principal
are due on the maturity date of January 29, 2011. The note was paid
in cash in January 2011.
Note Payable to Repurchase Membership Units (unsecured)
- Prior to December 31, 2009, the Company agreed to repurchase
51,637 Membership Units previously issued to the member for $35,019
which remained unpaid as of December 31, 2009. Subsequently, the
Company issued a note dated January 1, 2010 to evidence the
obligation. The note bears interest at a rate of 7% and the
outstanding principal and interest is due and payable on September
30, 2010, the maturity date. The note remained unpaid at the
maturity date and was paid in February 2011. As of December 31,
2010 the outstanding principal amounted to $30,629 ($35,019 as of
December 31, 2009).
Long
term notes payable to members, net of unamortized
discount:
Notes Dated September 15 and October 15, 2009 (unsecured)
- On September 15 and October 15, 2009, the Company issued two
notes payable to the same third party in the amounts of $15,000 and
$10,000, respectively. In conjunction with the $15,000 note,
a warrant to purchase 185,503 membership units at less than $.0001
per unit was issued, and in conjunction with the $10,000 note, a
warrant to purchase 92,751 Membership Units at less than $.0001 per
unit was issued. The warrants were valued at $11,301 for the
$15,000 note and $6,962 for the $10,000 and recorded as discounts
to the respective notes payable and are being amortized over the
term of each note which significantly adjusts the effective
interest rate. The intrinsic value of the warrants at the time of
issuance was determined to be $68,750; the debt discount recorded
was based on allocating the $25,000 in transaction proceeds
proportionally between the notes and the warrants. The notes bear
interest at a rate of 10% and the outstanding principal and
interest is due and payable at maturity - January 31, 2012. As of
December 31, 2010, the total outstanding principal and unamortized
debt discounts for the two notes amounted to $25,000 and $4,443
($25,000 and $13,517 – December 31, 2009),
respectively. The warrants were exercised in 2010.
Note Dated May 27, 2010 (unsecured) - During the first
quarter of 2010 the holder of the Notes dated September 15 and
October 15, 2009 advanced additional funds, totaling $450,000, to
the Company and obtained conversion rights to warrants to acquire
Membership Units. In March 2010, $225,000 was converted into
warrants to acquire approximately 1,706,626 Membership Units and
this amount was recorded as equity. Pursuant to an agreement
effective on May 27, 2010, in exchange for the remaining $225,000
advanced, the Company issued warrants to acquire approximately
1,409,821 Membership Units and a note for $45,000. The note bears
interest at 10%, which is due with the principal amount on January
31, 2012. The note was satisfied in January 2011 by
conversion to equity in connection with the January 25, 2011
private placement.
Note Dated December 30, 2009 (unsecured) - On December 30,
2009, the Company issued a note to a member in exchange for
advances the member previously made to the Company. The
original amount of the note was $30,054 and, in June 2010, the
Company agreed to allow the principal and accrued interest of
$1,257 to be converted into 165,951 Membership Units.
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