Note 3. Notes Payable	9 Months Ended
Sep. 30, 2016
Notes
Note 3. Notes Payable	Note 3. Notes Payable In 2011 the Company borrowed $200,000 with a Promissory Note (“the Note”) payable to David and Edna Kasmoch (the “Kasmochs”), the parents of Timothy Kasmoch, the Company’s President and Chief Executive Officer, at 12% interest and prepaid for a period of three months, renewable for an additional three months by the prepayment of additional interest and secured by certain equipment. Timothy Kasmoch has personally guaranteed the repayment of this Note. As of September 30, 2016 the Note was past due and the Company is in default. The Company expects to extend the Note in the near future and pay it in full within the next six months, although there can be no assurance the Company will have adequate cash flow to allow for any additional payments or that the maturity date will be extended. In September 30 2015, the Company received a demand letter from counsel for the Note holder declaring a default under the Note. Counsel demanded payment of the entire amount due under the Note as well as defaulted payments under the related Bowling Green Holdings (“BGH”) capital lease discussed in Note 4, along with additional accrued interest and penalties. At September 30, 2016 and December 31, 2015 the Company accrued a total of $192,500 and $95,780, respectively, in estimated interest and penalties. The Company is in negotiations with counsel, BGH and the Kasmochs to resolve this default, although there can be no assurance these negotiations will be successful. In addition, during the third quarter the Company has exchanged certain monies with BGH for operating funds for the Florida location, with a balance of $7,459 due BGH at September 30, 2016. The Company has presented all amounts due either BGH (excluding the capital lease) or the Kasmochs as one line item amount on the accompanying balance sheet, “Notes and fees payable - related parties, in default”. In 2012 the Company received a Notice and Demand of Payment Withdrawal Liability from Central States Southeast and Southwest Areas Pension Fund (the “Notice”), the pension trustee that was funded by the Company for the benefit of its former employees at its City of Toledo operation. In December 2013, the Company received a Notice of Default from Central States, and in September 2014 the Company agreed to pay Central States a total of $415,000 plus interest on a financed settlement over 19 months, with payments of $6,000 per month for the first twelve months and $10,000 per month for the following six months, with a balloon payment of approximately $312,000 due on or before February 1, 2016. Concurrently a separate security agreement was agreed on, effectively securing all of the Company’s assets and future rights to assets. As of the date of this filing, the Company is not in compliance with the new settlement agreement, as the remaining two payments of $10,000 as well as the balloon payment are overdue. In an event of default, the Company becomes liable for liquidating damages to Central States in the amount of $78,965. This liability has been added to the total amount owed under this agreement. The amount owed under this agreement was $422,091 as of September 30, 2016 and $408,031 as of December 31, 2015, respectively. In 2009 the Company approved an offering of up to $1,000,000 of Convertible Debentures (the “Debentures”), convertible at any time into our unregistered common stock at $2.00 per share. The Debentures were issuable in $5,000 denominations, are unsecured and have a stated interest rate of 8%, payable quarterly to holders of record. As of June 30, 2013, the Company held $455,000 of Debentures, but defaulted and did not pay the holders the principal amount due, all of which became due. During 2015, two of the Company’s debenture holders converted their respective debt to restricted shares of the Company’s common stock, reducing the amount of Debentures that remain outstanding and in default at September 30, 2016 to $365,000. The Company continues to accrue interest on the principal amount at the rate set forth in the Debentures until the principal amount is paid in full. The Company has not made the interest payments due in October 2015 or all four quarterly installments due in 2016. The Company expects to pay all accrued interest due and the principal amount to all outstanding holders of the Debentures after completing substitute financial arrangements, though there can be no assurance of the timing of receipt of these funds and amounts available from these substitute arrangements. In October 2015, the Company financed its directors and officers insurance and borrowed $30,100 over 10 months at 9% interest, with monthly payments of $3,136 and the note was unsecured. The note was paid in full as of September 30, 2016. In December 2015, the Company entered into an agreement with JSJ Investments, Inc. (“JSJ”) to issue a convertible promissory note (“JSJ Note”) to the Company for $125,000 in cash, less $10,000 in fees paid in debt issuance costs to a third party. The JSJ Note was for a term of nine (9) month, an interest rate of 10%, and a $4,000 original issue discount fee on actual payments made. JSJ could elect to convert all or part of the debt into restricted shares of the Company’s common stock for a price equaling the lesser of $0.43 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. The Company was also required to reserve 1,250,000 authorized but unissued shares of its common stock, per an irrevocable letter to the Company’s transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering. The conversion feature of the JSJ Note was determined to be a beneficial conversion feature and was recorded as a debt discount at a fair value of $83,000 at the time of issuance, and was subsequently amortized to interest expense ratably over the term outstanding. As a result of the June 2016 convertible note issued to JMJ Financial, explained later in this Note 3, the JSJ Note was retired in late June 2016 for a total payment of approximately $190,300, including accrued interest and $62,500 in an early prepayment premium. In January 2016, the Company entered into an agreement with JMJ Financial (“JMJ”), to issue a Convertible Promissory Note (“JMJ Note”) to the Company for $500,000, with an initial loan of $100,000 in cash, less $6,950 in debt issuance costs paid to Craft Capital Management, LLC (“Craft”). Craft also received 4,000 stock warrants, valued at $3,000, to purchase unregistered common stock of the Company at an exercise price of $1.00 per share. The JMJ Note is for a term of two (2) years, an interest rate of 12% if not paid within the first 90 days, and a 10% original issue discount fee on actual payments made. After 180 days from the agreement date, JMJ can elect to convert all or part of the debt into restricted shares of the Company’s common stock for a price equaling the lesser of $0.77 or a 40% discount to the lowest trading price during the previous twenty-five (25) trading days to the date of the conversion notice. The Company was also required to reserve 2,500,000 authorized but unissued shares of its common stock, per an irrevocable Letter of Instructions to the Company’s transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering. From July through September 2016, JMJ Financial was issued a total of 155,000 registered shares of the Company’s common stock to convert $46,785 of debt, in accordance with the JMJ Note. Exemption from registration is claimed under section 3(a)(9) of the Securities Act as a transaction involving an exchange of securities of the same issuer where no commissions are being paid. The conversion feature of the JMJ Note was determined to be a beneficial conversion feature and was recorded as a debt discount at fair value of $67,000. This debt discount is being amortized to interest expense ratably over the two year note term. The total amount owed on the JMJ Note was $53,215 and the gross discount was $48,301, including net debt issuance costs of $6,427, as of September 30, 2016. The carrying amount on the JMJ Note was $4,914 as of September 30, 2016, and is classified as long-term debt on the balance sheet. In March 2016, the Company entered into an agreement with Tangiers Investment Group, LLC (“Tangiers”), to issue a 10% Convertible Promissory Note (“Tangiers Note”) to the Company for $58,500 in cash, less $8,500 in original issue discount retained by Tangiers for due diligence and legal expenses. The Tangiers Note was for a term of one (1) year, an interest rate of zero percent if prepaid within the first 90 days, with a graduated prepayment penalty every 30 days, up until 180 days from the March 2016 effective date. At any time Tangiers could elect to convert all or part of the debt into restricted shares of the Company‘s common stock for a price equaling the lesser of $0.60 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. The Company was also required to reserve 700,000 authorized but unissued shares of its common stock, per an irrevocable Letter of Instructions to the Company’s transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering. The conversion feature of the Tangiers Note was determined to be a beneficial conversion feature, and was recorded as a debt discount at fair value of $39,000 at the time of issuance and subsequently amortized to interest expense ratably over the term outstanding. As a result of the June 2016 convertible note issued to JMJ Financial, explained later in this Note 3, the Tangiers Note was retired in late June 2016 for a total payment of $81,900, including accrued interest and approximately $17,600 in an early prepayment premium. In April 2016, the Company entered into an agreement with Tangiers Global, LLC (“Tangiers Global”), to issue a 10% Convertible Promissory Note (“Tangiers Global Note”) to the Company for $110,000 in cash, less $10,000 in original issue discount retained by Tangiers Global. The Tangiers Global Note was for a term of one (1) year, an interest rate of zero percent if prepaid within the first 90 days, with a graduated prepayment penalty every 30 days, up until 180 days from the April 2016 effective date. At any time Tangiers Global could elect to convert all or part of the debt into restricted shares of the Company‘s common stock for a price equaling the lesser of $0.60 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. The Company was also required to reserve 1,400,000 authorized but unissued shares of its common stock, per an irrevocable Letter of Instructions to the Company’s transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering. The conversion feature of the Tangiers Global Note was determined to be a beneficial conversion feature, and was recorded as a debt discount at a fair value of $73,000 and subsequently amortized to interest expense ratably over the term outstanding. As a result of the June 2016 convertible note issued to JMJ Financial, explained later in this Note 3, the Tangiers Global Note was retired in late June 2016 for a total payment of $121,000, including a $11,000 early prepayment premium. In June 30 2016, the Company entered into a second agreement with JMJ Financial (“JMJ”), to issue a 10% convertible promissory note to JMJ (“JMJ Note #2”) in the principal amount of $585,000 in cash, less $60,000 in original issue discount retained by JMJ, less $31,500 in debt issuance costs paid to Craft Capital Management LLC. Craft also received 21,000 stock warrants, valued at $19,900, to purchase unregistered common stock of the Company at a purchase price of $1.00 per share. The JMJ Note #2 is due and payable on June 13, 2017 and is convertible at the lesser of $0.90 or 75% of the lowest trade price in the 25 trading days previous to the conversion date. The JMJ Note #2 is convertible at the sole option of JMJ. The Company has the right to repay up to 98% of the JMJ Note #2 after the effective date in an amount equal to 120% of the sum of the principal sum being repaid plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due on such principal sum or, alternatively, at any time on or before 180 days after the issuance date of the JMJ Note #2 to pay an amount equal to 140% of the sum of the principal sum being repaid, plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due of such principal sum. After 180 days after the issuance date of the JMJ Note #2, the Company may not prepay the note prior to the maturity date without the approval of JMJ. JMJ has the right in its sole discretion to require the Company to repurchase the JMJ Note #2 from JMJ at any time after the issuance date in an amount equal to 125% of the sum of the principal sum plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due on such principal sum. The Company was required to reserve 8,000,000 shares of common stock for potential conversion of the JMJ Note #2. The Company also agreed to file an S-1 Registration Statement (“S-1”) to register the resale of the shares of common stock issuable upon conversion of the JMJ Note #2 as well as the resale of 455,000 warrants issued to JMJ in connection with this transaction. The S-1 is required to include 5,000,000 shares of common stock for potential resale of the securities issuable upon conversion of the JMJ Note #2 and exercise of the warrants. The Registration Rights Agreement, as amended, provides for a $50,000 penalty in the event the S-1 is not filed with the SEC on or before August 1, 2016 and a $25,000 penalty if the S-1 is not declared effective by October 31, 2016. Exemption from registration is claimed under Section 4(2) of the Securities Act as transaction by an issuer not involving a public offering. The Company filed the S-1 on July 25, 2016, thus avoiding the $50,000 penalty, and filed Amendment No. 1 to the Form S-1 on October 24, 2016, and as of the date of this filing the S-1 has not yet been declared effective, however, JMJ has yet to contact the Company on enforcing the $25,000 penalty as of the date of this filing. The conversion feature and attached warrants of the JMJ Note #2 were valued and determined to be beneficial. The fair value of the beneficial conversion feature and warrants were recorded as a debt discount at their relative fair values totalling $473,600. This debt discount is being amortized to interest expense ratably over the one year note term. The total amount owed on the JMJ Note #2 is $585,000 and the gross discount is $411,125, including an original issue discount of $113,304 and net debt issuance costs of $36,123, as of September 30, 2016. The carrying amount on the JMJ Note #2 was $173,875 as of September 30, 2016, and is classified as short-term debt on the balance sheet. As of September 30, 2016, both of the outstanding convertible notes to JMJ Financial (collectively, “the JMJ Notes”) have no floor price but provide that unless otherwise agreed to in writing by the Company and JMJ, at no time will JMJ convert any amount of the JMJ Notes into common stock that would result in the investor owning more than 4.99% of the Company’s outstanding common stock. In October 2016, the Company filed Amendment No. 1 to Form S-1 Registration Statement to register 2,000,000 shares of common stock for resale, which includes 455,000 shares issuable upon exercise of warrants and up to 1,545,000 shares of common stock issuable upon conversion of the JMJ Notes in the aggregate principal amount of $685,000. As of the filing date of this Form 10-Q, said Registration Statement has not been declared effective by the Securities and Exchange Commission. In September 2016 the Company approved an offering of up to $250,000 of Convertible Debentures (the “2016 Debentures”), convertible at any time into shares of the Company’s unregistered common stock at $0.30 per share. The 2016 Debentures were issuable in $10,000 denominations, are unsecured, have a stated interest rate of 12%, are payable monthly to holders of record and include stock warrants for 50% of the amount of debt, the warrants convertible at a price of $0.60 per share. The conversion feature and attached warrants of the 2016 Debentures were valued and determined to be beneficial. The fair value of the beneficial conversion feature and warrants were recorded as a debt discount at their relative fair values totalling $13,500 as of September 30, 2016, for the total of $100,000 received on that date from Michael Thompson. This debt discount will be amortized to interest expense ratably over the one year note term. The total amount owed on the 2016 Debentures is $100,000 and the gross discount is $13,500 as of September 30, 2016. The carrying amount on the 2016 Debentures was $86,500 as of September 30, 2016, and is classified as short-term debt on the balance sheet. An additional $110,000 was issued in October 2016. The Company timely made the interest payments due on October 31, 2016.

Note 3. Notes Payable

9 Months Ended

Sep. 30, 2016

Note 3. Notes Payable

In 2011 the Company borrowed $200,000 with a Promissory Note (“the Note”) payable to David and Edna Kasmoch (the “Kasmochs”), the parents of Timothy Kasmoch, the Company’s President and Chief Executive Officer, at 12% interest and prepaid for a period of three months, renewable for an additional three months by the prepayment of additional interest and secured by certain equipment. Timothy Kasmoch has personally guaranteed the repayment of this Note. As of September 30, 2016 the Note was past due and the Company is in default. The Company expects to extend the Note in the near future and pay it in full within the next six months, although there can be no assurance the Company will have adequate cash flow to allow for any additional payments or that the maturity date will be extended. In September 30 2015, the Company received a demand letter from counsel for the Note holder declaring a default under the Note. Counsel demanded payment of the entire amount due under the Note as well as defaulted payments under the related Bowling Green Holdings (“BGH”) capital lease discussed in Note 4, along with additional accrued interest and penalties. At September 30, 2016 and December 31, 2015 the Company accrued a total of $192,500 and $95,780, respectively, in estimated interest and penalties. The Company is in negotiations with counsel, BGH and the Kasmochs to resolve this default, although there can be no assurance these negotiations will be successful. In addition, during the third quarter the Company has exchanged certain monies with BGH for operating funds for the Florida location, with a balance of $7,459 due BGH at September 30, 2016. The Company has presented all amounts due either BGH (excluding the capital lease) or the Kasmochs as one line item amount on the accompanying balance sheet, “Notes and fees payable - related parties, in default”.

In 2012 the Company received a Notice and Demand of Payment Withdrawal Liability from Central States Southeast and Southwest Areas Pension Fund (the “Notice”), the pension trustee that was funded by the Company for the benefit of its former employees at its City of Toledo operation. In December 2013, the Company received a Notice of Default from Central States, and in September 2014 the Company agreed to pay Central States a total of $415,000 plus interest on a financed settlement over 19 months, with payments of $6,000 per month for the first twelve months and $10,000 per month for the following six months, with a balloon payment of approximately $312,000 due on or before February 1, 2016. Concurrently a separate security agreement was agreed on, effectively securing all of the Company’s assets and future rights to assets. As of the date of this filing, the Company is not in compliance with the new settlement agreement, as the remaining two payments of $10,000 as well as the balloon payment are overdue. In an event of default, the Company becomes liable for liquidating damages to Central States in the amount of $78,965. This liability has been added to the total amount owed under this agreement. The amount owed under this agreement was $422,091 as of September 30, 2016 and $408,031 as of December 31, 2015, respectively.

In 2009 the Company approved an offering of up to $1,000,000 of Convertible Debentures (the “Debentures”), convertible at any time into our unregistered common stock at $2.00 per share. The Debentures were issuable in $5,000 denominations, are unsecured and have a stated interest rate of 8%, payable quarterly to holders of record. As of June 30, 2013, the Company held $455,000 of Debentures, but defaulted and did not pay the holders the principal amount due, all of which became due. During 2015, two of the Company’s debenture holders converted their respective debt to restricted shares of the Company’s common stock, reducing the amount of Debentures that remain outstanding and in default at September 30, 2016 to $365,000. The Company continues to accrue interest on the principal amount at the rate set forth in the Debentures until the principal amount is paid in full. The Company has not made the interest payments due in October 2015 or all four quarterly installments due in 2016. The Company expects to pay all accrued interest due and the principal amount to all outstanding holders of the Debentures after completing substitute financial arrangements, though there can be no assurance of the timing of receipt of these funds and amounts available from these substitute arrangements.

In October 2015, the Company financed its directors and officers insurance and borrowed $30,100 over 10 months at 9% interest, with monthly payments of $3,136 and the note was unsecured. The note was paid in full as of September 30, 2016.

In December 2015, the Company entered into an agreement with JSJ Investments, Inc. (“JSJ”) to issue a convertible promissory note (“JSJ Note”) to the Company for $125,000 in cash, less $10,000 in fees paid in debt issuance costs to a third party. The JSJ Note was for a term of nine (9) month, an interest rate of 10%, and a $4,000 original issue discount fee on actual payments made. JSJ could elect to convert all or part of the debt into restricted shares of the Company’s common stock for a price equaling the lesser of $0.43 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. The Company was also required to reserve 1,250,000 authorized but unissued shares of its common stock, per an irrevocable letter to the Company’s transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering. The conversion feature of the JSJ Note was determined to be a beneficial conversion feature and was recorded as a debt discount at a fair value of $83,000 at the time of issuance, and was subsequently amortized to interest expense ratably over the term outstanding. As a result of the June 2016 convertible note issued to JMJ Financial, explained later in this Note 3, the JSJ Note was retired in late June 2016 for a total payment of approximately $190,300, including accrued interest and $62,500 in an early prepayment premium.

In January 2016, the Company entered into an agreement with JMJ Financial (“JMJ”), to issue a Convertible Promissory Note (“JMJ Note”) to the Company for $500,000, with an initial loan of $100,000 in cash, less $6,950 in debt issuance costs paid to Craft Capital Management, LLC (“Craft”). Craft also received 4,000 stock warrants, valued at $3,000, to purchase unregistered common stock of the Company at an exercise price of $1.00 per share. The JMJ Note is for a term of two (2) years, an interest rate of 12% if not paid within the first 90 days, and a 10% original issue discount fee on actual payments made. After 180 days from the agreement date, JMJ can elect to convert all or part of the debt into restricted shares of the Company’s common stock for a price equaling the lesser of $0.77 or a 40% discount to the lowest trading price during the previous twenty-five (25) trading days to the date of the conversion notice. The Company was also required to reserve 2,500,000 authorized but unissued shares of its common stock, per an irrevocable Letter of Instructions to the Company’s transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering. From July through September 2016, JMJ Financial was issued a total of 155,000 registered shares of the Company’s common stock to convert $46,785 of debt, in accordance with the JMJ Note. Exemption from registration is claimed under section 3(a)(9) of the Securities Act as a transaction involving an exchange of securities of the same issuer where no commissions are being paid. The conversion feature of the JMJ Note was determined to be a beneficial conversion feature and was recorded as a debt discount at fair value of $67,000. This debt discount is being amortized to interest expense ratably over the two year note term. The total amount owed on the JMJ Note was $53,215 and the gross discount was $48,301, including net debt issuance costs of $6,427, as of September 30, 2016. The carrying amount on the JMJ Note was $4,914 as of September 30, 2016, and is classified as long-term debt on the balance sheet.

In March 2016, the Company entered into an agreement with Tangiers Investment Group, LLC (“Tangiers”), to issue a 10% Convertible Promissory Note (“Tangiers Note”) to the Company for $58,500 in cash, less $8,500 in original issue discount retained by Tangiers for due diligence and legal expenses. The Tangiers Note was for a term of one (1) year, an interest rate of zero percent if prepaid within the first 90 days, with a graduated prepayment penalty every 30 days, up until 180 days from the March 2016 effective date. At any time Tangiers could elect to convert all or part of the debt into restricted shares of the Company‘s common stock for a price equaling the lesser of $0.60 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. The Company was also required to reserve 700,000 authorized but unissued shares of its common stock, per an irrevocable Letter of Instructions to the Company’s transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering. The conversion feature of the Tangiers Note was determined to be a beneficial conversion feature, and was recorded as a debt discount at fair value of $39,000 at the time of issuance and subsequently amortized to interest expense ratably over the term outstanding. As a result of the June 2016 convertible note issued to JMJ Financial, explained later in this Note 3, the Tangiers Note was retired in late June 2016 for a total payment of $81,900, including accrued interest and approximately $17,600 in an early prepayment premium.

In April 2016, the Company entered into an agreement with Tangiers Global, LLC (“Tangiers Global”), to issue a 10% Convertible Promissory Note (“Tangiers Global Note”) to the Company for $110,000 in cash, less $10,000 in original issue discount retained by Tangiers Global. The Tangiers Global Note was for a term of one (1) year, an interest rate of zero percent if prepaid within the first 90 days, with a graduated prepayment penalty every 30 days, up until 180 days from the April 2016 effective date. At any time Tangiers Global could elect to convert all or part of the debt into restricted shares of the Company‘s common stock for a price equaling the lesser of $0.60 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. The Company was also required to reserve 1,400,000 authorized but unissued shares of its common stock, per an irrevocable Letter of Instructions to the Company’s transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering. The conversion feature of the Tangiers Global Note was determined to be a beneficial conversion feature, and was recorded as a debt discount at a fair value of $73,000 and subsequently amortized to interest expense ratably over the term outstanding. As a result of the June 2016 convertible note issued to JMJ Financial, explained later in this Note 3, the Tangiers Global Note was retired in late June 2016 for a total payment of $121,000, including a $11,000 early prepayment premium.

In June 30 2016, the Company entered into a second agreement with JMJ Financial (“JMJ”), to issue a 10% convertible promissory note to JMJ (“JMJ Note #2”) in the principal amount of $585,000 in cash, less $60,000 in original issue discount retained by JMJ, less $31,500 in debt issuance costs paid to Craft Capital Management LLC. Craft also received 21,000 stock warrants, valued at $19,900, to purchase unregistered common stock of the Company at a purchase price of $1.00 per share. The JMJ Note #2 is due and payable on June 13, 2017 and is convertible at the lesser of $0.90 or 75% of the lowest trade price in the 25 trading days previous to the conversion date. The JMJ Note #2 is convertible at the sole option of JMJ. The Company has the right to repay up to 98% of the JMJ Note #2 after the effective date in an amount equal to 120% of the sum of the principal sum being repaid plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due on such principal sum or, alternatively, at any time on or before 180 days after the issuance date of the JMJ Note #2 to pay an amount equal to 140% of the sum of the principal sum being repaid, plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due of such principal sum. After 180 days after the issuance date of the JMJ Note #2, the Company may not prepay the note prior to the maturity date without the approval of JMJ. JMJ has the right in its sole discretion to require the Company to repurchase the JMJ Note #2 from JMJ at any time after the issuance date in an amount equal to 125% of the sum of the principal sum plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due on such principal sum. The Company was required to reserve 8,000,000 shares of common stock for potential conversion of the JMJ Note #2. The Company also agreed to file an S-1 Registration Statement (“S-1”) to register the resale of the shares of common stock issuable upon conversion of the JMJ Note #2 as well as the resale of 455,000 warrants issued to JMJ in connection with this transaction. The S-1 is required to include 5,000,000 shares of common stock for potential resale of the securities issuable upon conversion of the JMJ Note #2 and exercise of the warrants. The Registration Rights Agreement, as amended, provides for a $50,000 penalty in the event the S-1 is not filed with the SEC on or before August 1, 2016 and a $25,000 penalty if the S-1 is not declared effective by October 31, 2016. Exemption from registration is claimed under Section 4(2) of the Securities Act as transaction by an issuer not involving a public offering. The Company filed the S-1 on July 25, 2016, thus avoiding the $50,000 penalty, and filed Amendment No. 1 to the Form S-1 on October 24, 2016, and as of the date of this filing the S-1 has not yet been declared effective, however, JMJ has yet to contact the Company on enforcing the $25,000 penalty as of the date of this filing. The conversion feature and attached warrants of the JMJ Note #2 were valued and determined to be beneficial. The fair value of the beneficial conversion feature and warrants were recorded as a debt discount at their relative fair values totalling $473,600. This debt discount is being amortized to interest expense ratably over the one year note term. The total amount owed on the JMJ Note #2 is $585,000 and the gross discount is $411,125, including an original issue discount of $113,304 and net debt issuance costs of $36,123, as of September 30, 2016. The carrying amount on the JMJ Note #2 was $173,875 as of September 30, 2016, and is classified as short-term debt on the balance sheet.

As of September 30, 2016, both of the outstanding convertible notes to JMJ Financial (collectively, “the JMJ Notes”) have no floor price but provide that unless otherwise agreed to in writing by the Company and JMJ, at no time will JMJ convert any amount of the JMJ Notes into common stock that would result in the investor owning more than 4.99% of the Company’s outstanding common stock. In October 2016, the Company filed Amendment No. 1 to Form S-1 Registration Statement to register 2,000,000 shares of common stock for resale, which includes 455,000 shares issuable upon exercise of warrants and up to 1,545,000 shares of common stock issuable upon conversion of the JMJ Notes in the aggregate principal amount of $685,000. As of the filing date of this Form 10-Q, said Registration Statement has not been declared effective by the Securities and Exchange Commission.

In September 2016 the Company approved an offering of up to $250,000 of Convertible Debentures (the “2016 Debentures”), convertible at any time into shares of the Company’s unregistered common stock at $0.30 per share. The 2016 Debentures were issuable in $10,000 denominations, are unsecured, have a stated interest rate of 12%, are payable monthly to holders of record and include stock warrants for 50% of the amount of debt, the warrants convertible at a price of $0.60 per share. The conversion feature and attached warrants of the 2016 Debentures were valued and determined to be beneficial. The fair value of the beneficial conversion feature and warrants were recorded as a debt discount at their relative fair values totalling $13,500 as of September 30, 2016, for the total of $100,000 received on that date from Michael Thompson. This debt discount will be amortized to interest expense ratably over the one year note term. The total amount owed on the 2016 Debentures is $100,000 and the gross discount is $13,500 as of September 30, 2016. The carrying amount on the 2016 Debentures was $86,500 as of September 30, 2016, and is classified as short-term debt on the balance sheet. An additional $110,000 was issued in October 2016. The Company timely made the interest payments due on October 31, 2016.