Note 5. Convertible Notes and Line of Credit

9 Months Ended

Sep. 30, 2017

Notes

Note 5. Convertible Notes and Line of Credit

Note 5.  Convertible Notes and Line of Credit

Line of Credit

On October 23, 2008, the Company entered into an agreement with an unrelated third party for an unsecured Line of Credit up to a maximum of $1,000,000. The Line of Credit provided for funds to be drawn as needed and carries an interest rate on amounts borrowed of 9% per annum, originally payable quarterly, based on the pro rata number of days outstanding. All funds originally advanced under the facility were due and payable by November 1, 2012. As an inducement to provide the facility, the lender was awarded an immediate option to purchase 50,000 shares of common stock of the Company at $1.75 per share. In addition, the lender received an option to purchase a maximum of 250,000 additional shares of common stock of the Company at $1.75 per share. The options expire following repayment in full by the Company of the amount borrowed. At September 30, 2017, the principal and accrued interest due on the obligation, which totals $1,740,984, remains unpaid.

Convertible Notes

Pursuant to a Private Placement Memorandum dated March 1, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000 with interest at 12% per annum, together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Note is convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor. The five-year Warrants issued in connection with the Units have expired.

Pursuant to an additional Private Placement Memorandum dated October 25, 2010, the Company offered Units consisting of a two year unsecured, convertible promissory note in the principal amount of $25,000, together with a five year Warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The Promissory Notes bear interest at 9% per annum and are convertible into 50,000 shares of common stock of the Company immediately upon issuance at the option of the investor. The five-year Warrants issued in connection with the Units have expired.

The Convertible Notes issued pursuant to the two Private Placements discussed above total $962,500 in principal and became due and payable beginning in March 2012 and extending at various dates through June 2013. As of the date of the filing of this report, all of the aforementioned debt obligations remain unpaid and in default under the repayment terms of the notes. In addition, a total of $529,801 of accrued interest on the above notes remains outstanding at September 30, 2017.

The table below summarizes the Company’s debt arising from the above-described sources as of September 30, 2017 and December 31, 2016:   

	Principal	Amount	Amount
	Amount	Due	Due
Loan Facility	Owed	Related Parties	Others
Line of Credit	$1,000,000	$-	$1,000,000
Private Placements:
March 1, 2010	475,000	75,000	400,000
October 25, 2010	487,500	-	487,500
Total Private Placements	962,500	75,000	887,500
Total	$1,962,500	$75,000	$1,887,500