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NOTES PAYABLE | 6 Months Ended
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Jun. 30, 2012
NOTES PAYABLE |
NOTES PAYABLE | NOTE 5 NOTES PAYABLE Notes Payable – Related Parties Funds are advanced to the Company from various related parties, including from Mr. Robert Lutz. Other shareholders fund the Company as necessary to meet working capital requirements and expenses. The following is a summary of amounts due to related parties, including accrued interest separately recorded, as of June 30, 2012:
Related party | Nature of relationship | Terms of the agreement | Principal amount | Accrued Interest
Lutz, Investments LP | Mr. Lutz is the CEO of the Company | Convertible note payable due March 31, 2012. The note is convertible at $0.19 per share. As of June 30, 2012 the note has not been converted and is past due. | $200,000 | $3,237
Mr. Robert Lutz | Mr. Lutz is the CEO of the Company | Unsecured $25,000 line of credit with interest accrued at 10% per annum, due on demand. Available line as of June 30, 2012 is $20,000. | $5,000 | $4
MAH Holding, LLC | MAH Holding, LLC has provided previous lines of credit to affiliates of WMT. | Unsecured note with interest accrued at 10% per annum, due on demand. | $91,920 | $4,911
Total |  |  | $296,920 | $8,152
Notes Payable On December 28, 2010, the Company issued a note in the amount of $50,000 to an unrelated party. The note and interest, accrued at 12%, had a maturity date of February 28, 2011. In consideration of the note, the Company issued 160,000 shares of Common Stock valued at $56,000. The Company recorded the value of the Common Stock and $3,100 of issuance costs as a loan origination fee in the fourth quarter of 2010. The entire balance due on this note, including accrued interest, was paid in full in February of 2011. In the first quarter of 2011, the Company issued debt in the amount of $1,660,000 to various unrelated parties. The terms of the debt are as follows: (i) interest accrues at 10% per annum; (ii) maturity date is six months from the date of issuance; and (iii) debt is secured by a first priority interest in the inventory of the Company and is senior to all other obligations of the Company. Additionally, the Company agreed to issue a total of 4,150,000 shares of Common Stock to the lenders at a price of $0.01 per share, the value of which reduced the balance of the notes payable. The Company issued 3,900,000 of the shares in the first quarter of 2011 and recorded the difference between the fair market value of the stock and the $39,000 reduction in notes payable as a loan origination fee in the amount of $2,276,250. The remaining 250,000 shares were issued in the second quarter of 2011 and a loan origination fee in the amount of $153,750 was recorded in addition to a $2,500 reduction to the notes payable. The entire principal balance and all accrued interest payable due to these lenders was paid in full as of December 31, 2011. On January 11, 2011 the Company executed a promissory note in the amount of $200,000 to an unrelated party. In consideration for the note, the Company issued 200,000 shares of Common Stock valued at $112,000 as a loan origination fee. The note payable and interest, accrued at 10%, was paid in full in February of 2011. On January 10, 2011, the Company executed two promissory notes to two unrelated parties in the amount of $50,000 each. The notes and interest, accrued at 24% per annum, matured two months from the issuance date. An additional note payable in the amount of $100,000 with the same terms was issued to a third party on January 14, 2011. The Company issued a total of 400,000 shares of Common Stock in the first quarter for a total reduction to the notes payable in the amount of $8,000. The remaining note balances including $8,000 of accrued interest were paid in full as of March 31, 2011. On May 27, 2011, the Company executed a senior promissory note in the amount of $125,000 with an unrelated party. In consideration for the note, the Company agreed to issue 370,000 shares of Common Stock valued at $234,950 as a loan origination fee. The shares of stock were issued in the third quarter and as of December 31, 2011 the note balance was paid in full. On June 3, 2011, the Company executed a short-term promissory note in the amount of $75,000 to an unrelated party. The note was repaid in full as of June 30, 2011. On June 17, 2011, the Company executed three senior promissory notes to unrelated parties in the total amount of $250,000. The terms of the debt are as follows: (i) interest accrues at 12% per annum; (ii) maturity date is three months from the date of issuance; (iii) the Company will issue 475,000 shares of Common Stock; and (iv) the Company will issue to the Lenders five-year warrants to purchase a total of 475,000 shares of Common Stock at a price of $0.60 per share. The 475,000 Common Shares were issued in the third quarter of 2011 and the fair market value of the stock has been recorded as a loan origination fee in the amount of $332,750. The Company measured the fair value of the warrants and recorded a 100% discount against the principal of the notes. The discount is being accreted to interest expense over the term of the notes using the effective interest method. In September of 2011, the Company executed an agreement extending the due date of one of the notes in the amount of $62,500 to October 31, 2011. The Company also executed two additional agreements extending the due dates of the remaining notes to November 31, 2011. In the first quarter of 2012, the Company issued a total of 500,000 additional stock purchase warrants with an exercise price of $0.60 to the lenders as consideration for late payment. As of March 31, 2012, all principal and interest due to these lenders was paid in full and the discount related to the notes was fully amortized. On September 2, 2011, the Company executed two short-term promissory notes with two unrelated parties for a total of $55,000. Both notes were paid in full as of September 30, 2011. In January of 2012, the Company executed a non-interest bearing promissory note in the amount of $20,000 to an affiliate of Juventas, LLC. The note matures on May 20, 2012. The note was paid in full on April 3, 2012. On March 20, 2012, the Company executed a secured promissory note payable to Juventas, LLC in the amount of $930,000 related to the Settlement Agreement (see Note 3). As of June 30, 2012, the principal balance of $930,000 and $20,791 of accrued interest remained due. In July 2012, the Company reached an agreement with Juventas that upon payment to Juventas of $880,000 all remaining principal of, and accrued interest on, the Juventas secured promissory note would be forgiven. The Company made such payment in July 2012, at which point the note was cancelled. (See Note 11 “Subsequent Events). On June 11, 2012, the Company executed a purchase order financing agreement with an unrelated party. As part of the agreement, a $50,000 note payable, with interest accrued at 10% per annum, was executed. The proceeds of the note were paid to Applied Nutritionals as part of an inventory down payment. The lender will be reimbursed as the inventory is sold. As of June 30, 2012, the balance remaining due on this note and accrued interest payable are $50,000 and $278 respectively. Convertible Notes Payable OCTOBER 28, 2010 CONVERTIBLE NOTES On October 28, 2010, the Company executed four convertible promissory notes to unrelated parties with a combined total face amount of $390,000 and a funded amount of $250,000. The maturity date for each of the notes was February 28, 2011 and there was no stated interest rate. In accordance with ASC Topic No. 470-20-25-4 a discount in the amount of $202,800 was calculated as the total value of the beneficial conversion feature and was amortized over the term of the notes. Upon the February 28, 2011 maturity date, $275,000 of the balance owed was converted into 1,100,000 shares of Common Stock. An additional $20,000 of the balance owed was arranged to be converted into 80,000 shares of Common Stock which were issued in the second quarter of 2011. The remaining balance owed on the notes was paid in full in March of 2011. As consideration for making the above mentioned loans, a combined total of 800,000 warrants were issued to the lenders to purchase shares of Common Stock. The warrants have an exercise price of $.25, $.50, $.75 and $1.00 in increments of 200,000, respectively. All the warrants expire 5 years from the date of issuance. The fair value of the warrants on the date of issuance was calculated using the American-Binomial option pricing model at each of the above mentioned exercise prices. The $304,000 value of the warrants was recorded as a capital contribution and loan origination expense at the date of issuance. DECEMBER 28, 2010 CONVERTIBLE NOTE On December 28, 2010, a convertible promissory note was executed in the amount of $50,000 to an unrelated party. The note, which accrues interest at 8% per annum, had a maturity date of September 30, 2011. The note agreement included a $3,000 discount which was amortized over the nine-month term of the loan. The note was convertible into shares of Common Stock at a 45% discount. In July of 2011, the Company issued 235,603 shares of Common Stock in payment of the principal balance and all accrued interest. The Company also amortized the remaining discount of $985 and recorded a loss on the conversion in the amount of $52,066. APRIL 4 & MAY 20, 2011 CONVERTIBLE NOTES On April 4, 2011 and May 20, 2011, the Company executed convertible promissory notes with the same terms to the same unrelated party in the amounts of $50,000 and $30,000, respectively. The notes matured nine months from the date of issuance and accrued interest at 8% per annum. In the event of default the interest rate increased to 22%. The Note holder had the right to convert any outstanding principal and accrued interest payable, at a conversion price per share equal to 55% of the average of the three lowest closing prices of the Common Stock for the 10 day trading period ending on the latest complete trading day before the conversion date. In accordance with ASC Topic No. 470-20-25-4, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $77,418 as discount that reduced the carrying value of the convertible notes. The discount was accreted to interest expense over the term of the notes. In the fourth quarter of 2011, the principal balance of $50,000 and $2,000 of accrued interest payable related to the April 4 note was converted into 351,758 shares of Common Stock. The $30,000 of principal and $1,200 of accrued interest payable related to the May 20 note was converted into 269,676 shares of Common Stock. The remaining discount related to these notes was accreted to interest expense and the balance of due on these notes as of December 31, 2011 was zero. JUNE 9, 2011 CONVERTIBLE NOTES On June 9, 2011, the Company executed three convertible promissory notes to unrelated parties in the total amount of $300,000. The notes accrued interest at 10% and matured six months from the issue date. The notes were convertible into shares of Common Stock at the lesser of $0.40 per share or 50% of the lowest bid price in the five days preceding the conversion date. In addition, the Company issued to such investors a total of 999,999 three-year detachable warrants to purchase shares of Common Stock at an exercise price of $0.40 per share. In accordance with ASC 470-20, the proceeds of $300,000 were allocated based on the relative fair values of the convertible notes and the detachable warrants at the time of issuance. The Company allocated $198,876 of the proceeds to the detachable warrants and recorded an equivalent discount. The Company then recognized the intrinsic value of the embedded beneficial conversion feature of $101,124 as an equivalent discount for a total discount of $300,000. The discount was accreted to interest expense over the term of the notes using the effective interest method. In the fourth quarter of 2011, these notes were assumed by eHealth as part of the Assignment and Assumption agreement in which the Company’s 100% ownership of eHealth was transferred to HEB, LLC and Commercial Holdings AG, LLC (see Note 3 “Significant Transactions”). The $300,000 of principal owed on these notes as well as $16,767 of accrued interest payable was transferred to Secure eHealth in the transaction. All remaining discounts have been expensed to interest expense. As of December 31, 2011 the balance due on the June 9 convertible notes was zero. JUNE 21, 2011 CONVERTIBLE NOTE On June 21, 2011, the Company entered into a note and warrant purchase agreement whereby the Company issued and sold, and an unrelated party purchased: (i) a convertible promissory note of the Company in the principal amount of $560,000 bearing a 12% interest rate and maturity date of June 21, 2015 (ii) two warrants, each giving the holders the right to purchase 250,000 shares of Common Stock. Additionally upon closing, the Company issued to the lender 100,000 shares of Common Stock of the Company valued at $60,000 as a loan origination fee. In consideration for the issuance and sale of the note and warrants, the lender paid cash in the amount of $250,000 and issued five $50,000 5% secured notes, each with a maturity date 49 months from the initial funding date. The $60,000 variance between the face value of the note and the funds received represents a 9.1% original issue discount of $50,000 and a $10,000 payment obligation with respect to certain fees and expenses. The note is convertible into shares of Common Stock, at the option of the lender, at a price per share equal to (a) the principal and interest to be converted divided by (b) 70% of the lowest trade price for the thirty (30) trading days immediately preceding conversion. The principal and interest subject to conversion under the note shall be eligible for conversion in tranches, as follows: (1) an initial tranche in an amount equal to $310,000 and any interest or fees accrued thereon, and (5) five additional subsequent tranches each in an amount equal to $50,000 and any interest or fees accrued thereon. The first tranche of $310,000, representing the amounts paid by the investor upon the closing of the transaction, may be converted at the lender’s option at any time. The lender’s right to convert any of the subsequent tranches is conditioned upon the lender’s payment of the corresponding 5% secured note receivable (see note 4). Accordingly, principal and interest under the note may only be converted by the lender in proportion to the amounts paid under each of the 5% secured notes. Both warrants are exercisable for a period of five years from the initial funding date, and entitle the investor to purchase 250,000 shares of Common Stock. The first warrant is exercisable at $0.50 per share and the second at $1.00 per share. The Company measured the fair value of the warrants and the beneficial conversion feature of the note and recorded a discount against the principal of the note. The discount is being accreted to interest expense over the term of the notes using the effective interest method. The unamortized discount balance as of June 30, 2012 is $244,058. On April 25, 2012, the Note Holder issued a notice of default and failure to deliver related to the Company’s failure to issue shares of common stock upon receipt of the Note Holder’s notice of conversion for the principal amount of $10,000. The Note Holder elected to offset the five $50,000 5% secured notes and the related interest in the amount of $10,729 against the accrued interest payable and principal balance of the note payable. Additionally, in compliance with the original note agreement, the Company incurred a penalty equal to 1.5% of the conversion amount ($10,000) per day and will continue to accrue the default expense until the default is resolved. The penalty amount is being added to the principal balance of the note. The principal balance and accrued interest payable balance due on the note as of June 30, 2012, after offsetting the notes receivable balance and including the addition of the default penalty, is $427,722 and $7,165 respectively. JULY 13, AUGUST 18, & OCTOBER 7 2011 CONVERTIBLE NOTES On July 13, 2011, August 18, 2011, and October 7, 2011 the Company executed convertible promissory notes with the same terms to the same unrelated party in the amounts of $40,000, $50,000, and $30,000 respectively. The notes mature nine months from the date of issuance and accrue interest at 8% per annum. In the event of default the interest rate will increase to 22%. The Note holder has the right to convert any outstanding principal and accrued interest payable, into shares of Common Stock at a conversion price per share equal to 50% of the average of the three lowest closing prices of the Common Stock for the 10-day trading period ending on the latest complete trading day before the conversion date. In accordance with ASC Topic No. 470-20-25-4, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $118,542 as discount that reduced the carrying value of the convertible notes. The discount is being accreted to interest expense over the term of the notes. In the first quarter of 2012, the Company chose to prepay the July 13 and August 18 convertible note in the amount equal to 175% of all outstanding principal and accrued interest at the time of prepayment.in accordance with terms of the note agreements. The Company made payments in the total amount of $161,145 and the July 13 and August 18 notes and all related interest are paid in full. In April of 2012, the Company received a notice of default related to the October 7, 2011 note payable in accordance with the original note agreement for failing to comply with the reporting requirements of the Exchange Act. A default penalty, in the amount of $15,000 was incurred. In April of 2012, $12,000 of the principal balance of the note was converted into 137,143 shares of common stock. In May of 2012, the remaining principal balance of $18,000, the $15,000 default penalty and accrued interest payable of $1,200 was converted into a total of 382,573 shares of common stock. As of June 30, 2012, the principal balance and accrued interest payable related to the October 7, 2011 note payable has been paid in full and all related discounts are fully amortized. JUVENTAS CONVERTIBLE SECURED PROMISSORY NOTE On November 23, 2011, the Company executed a $500,000 secured promissory note to Juventas, LLC (see Note 3) related to the amended distribution agreement. The note and interest, accrued at 4% per annum was due on March 9, 2012. The note was to be automatically converted into five million shares of Common Stock upon the closing of the Company’s acquisition of Juventas, LLC. As of June 30, 2012 the principal balance and accrued interest related to this note is paid in full. MARCH 2012 CONVERTIBLE NOTES On March 3, 2012 the company issued a convertible note in the principal amount of $25,000 to an unrelated party. The original interest rate of 5% increases to 9% after the maturity date of June 30, 2012. The note is convertible at $0.19 per share. As of June 30, 2012, the principal balance of $25,000 and related interest of $572, accrued at 9% per annum, is past due. On March 15, 2012, the Company issued a convertible note in the amount of $50,000 to an unrelated party. The original interest rate of 5% increases to 9% after the maturity date of March 31, 2012. The note is convertible at $0.19 per share. As of June 30, 2012, the principal balance of $50,000 and related interest of $1,256, accrued at 9% per annum, is past due. On March 22, 2012 the company issued a convertible note in the principal amount of $100,000 to an unrelated party. The original interest rate of 5% increases to 9% after the maturity date of June 30, 2012. The note is convertible at $0.19 per share. As of June 30, 2012, the principal balance of $100,000 and related interest of $1,403 is past due. MAY 10, 2012 CONVERTIBLE NOTE On May 10, 2012, the Company executed convertible promissory note to an unrelated party in the amount of $53,000. The note matures nine months from the date of issuance and accrues interest at 8% per annum. In the event of default the interest rate will increase to 22%. The Note holder has the right to convert any outstanding principal and accrued interest payable, into shares of Common Stock at a conversion price per share equal to 50% of the average of the three lowest closing prices of the Common Stock for the 10-day trading period ending on the latest complete trading day before the conversion date. In accordance with ASC Topic No. 470-20-25-4, the Company recognized the intrinsic value of the embedded beneficial conversion feature of $46,765 as a discount that reduced the carrying value of the convertible note. The discount is being accreted to interest expense over the term of the notes. As of June 30, 2012, the discount balance is $38,247. As of June 30, 2012, the principal balance of $53,000 and accrued interest payable in the amount of $604 remains outstanding. SECOND QUARTER 2012 CONVERTIBLE NOTES On April 3, 2012, the company issued a convertible note in the principal amount of $25,000 to an unrelated party. The original interest rate of 5% increases to 9% after the maturity date of April 30, 2012. The note is convertible at $0.19 per share. As of June 30, 2012, the principal balance of $25,000 and related interest of $478, accrued at 9% per annum, is past due. On April 23, 2012, the Company issued a convertible note in the amount of $25,000 to an unrelated party. The original interest rate of 5% increases to 9% after the maturity date of October 31, 2012. The note is convertible at $0.19 per share. As of June 30, 2012, the principal balance of $25,000 and related interest of $409 is outstanding. MAY 30 CONVERTIBLE NOTE On May 30, 2012, the company issued a convertible note with the principal amount of up to $275,000 including an approximate original issue discount of 10% with a maturity date one year from the effective date. The note is convertible at the lesser of $0.19 or a 30% discount on the fair market value of the Company’s common stock. If the Company repays the note within 90 days of the effective date the interest rate shall be 0%. If the Company does not repay the note within 90 days a one-time interest charge of 5% will be applied to the note balance. As of June 30, 2012, the principal balance of this note has been funded in the amount of $50,000 with an additional 10% original issue discount of $5,000 for a total note balance of $55,000. A discount related to the beneficial conversion feature of the note has been recorded in the amount of $17,196. At June 30, 2012, the note balance net of the original issue discount and beneficial conversion discount is $34,689. Debentures On March 30, 2010, the Company entered into a Securities Purchase Agreement and, pursuant to this agreement, a total of $1,000,000 in principal amount of convertible debentures (the “Debentures”), with a maturity date of March 2013, may be sold to investors. The Debentures may be converted into shares of Common Stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion; provided that no holder may convert Debentures into, nor shall the Company issue to such holder, shares of Common Stock to the extent that the conversion would result in a holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock. This ownership restriction may be waived, however, by a holder upon sixty-one (61) days prior written notice. The Debentures may be redeemed by the Company at any time or from time to time at a price equal to (x) one hundred twenty percent (120%) of the principal amount of the Debenture if the Debenture is called for redemption prior to the expiration of six months from the issuance date, or one hundred thirty one percent (131%) if called for redemption thereafter, plus (y) interest accrued through the day immediately preceding the date of redemption. During 2010, the Company issued Debentures in the aggregate principal amount of $695,000. In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $297,857 was calculated as the total value of the beneficial conversion feature, which is being amortized over the term of the debt. In April of 2012, 4 million shares of common stock were issued in conversion of $588,000 of these debentures and a pro-rata share of the related interest receivable. On March 27, 2012, the Company entered into a Securities Purchase Agreement and sold $400,000 of convertible debentures with a maturity date of March 27, 2015, to an unrelated party for $360,000. The Debentures may be converted into Common Stock at a conversion price equal to seventy percent (70%) of the lowest closing bid price per share for the twenty (20) trading days immediately preceding the date of conversion; provided that no holder may convert Debentures into, nor shall the Company issue to such holder, shares of common stock to the extent that the conversion would result in a holder and its affiliates together beneficially owning more than 4.99% of the then issued and outstanding shares of Common Stock. Additionally, the Securities Purchase Agreement entitled the purchaser to 200,000 shares of Common Stock. In accordance with ASC Topic No. 470-20-25-4, a discount in the amount of $171,429 was calculated as the total value of the beneficial conversion feature, which is being amortized over the term of the debt. Additionally, a discount of $35,676 was allocated to to 200,000 share sof Common Stock based on the relative fair market value of the stock and convertible debt at the time of the agreement. The unamortized discount balance of all debentures outstanding at June 30, 2012 is $243,209. At June 30, 2012, the total debenture balance, net of discount is $263,791. In addition, total debt issuance costs of $115,350 have been deferred and are being amortized over the term of the debt. The unamortized balance of deferred loan costs at June 30, 2012 is $17,372. Interest expense on the debentures accrues at 6% per annum. The balance of accrued interest payable at June 30, 2012 is $23,448.

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