NOTE 14 – SUBSEQUENT EVENTS

CONVERTIBLE DEBT: HEP Investments, LLC

Debt Modification

On March 1, 2017, the Company and HEP Investments, LLC (“Lender”), entered into the following documents, effective as of March 1, 2017: (i) Eighth Amendment to Loan Agreement under which the Lender has agreed to advance up to a total of $17,500,000 to the Company, subject to certain conditions, and (ii) a Ninth Amended and Restated Senior Secured Convertible Promissory Note.  The Eighth Amendment to Loan Agreement amends and restates the Seventh Amendment to Loan Agreement, which was entered into with the Lender on December 31, 2015 and disclosed in the Company’s Form 8-K Current Report filed on January 7, 2016.  The Ninth Amended and Restated Senior Secured Convertible Promissory Note resets the total outstanding debt as of March 1, 2017 and provides for a maturity date of September 30, 2018.  The total outstanding debt as of March 1, 2017 is $12,982,203.  This amount includes unpaid principal of $9,427,200, interest outstanding as of February 28, 2017 of $2,955,003 and restructuring and legal fees of $600,000.

The Company, as consideration for the extension of the maturity date to September 30, 2018, agreed to provide for the conversion of the $12,982,203 Convertible Promissory Note into the Company’s restricted common stock at $.10 per share, with interest at the rate of 11% per annum.

The related indebtedness represented by this note shall be paid to the Lender in monthly installments of interest only beginning on July 1, 2017 and continuing on the first day of each month thereafter.

Based on the above, the total shares of common stock, if the Lender converted the complete $12,982,203 convertible debt, would be 129,822,030 shares, not including any future interest charges which may be converted into common stock.

Amounts advanced under the Note are secured by all the Company’s assets.

The Company has agreed to pay the following fees in connection with the Loan transaction (when the final $4,517,797 in funding is achieved): (i) a $361,602 closing fee, consisting of $216,961 in cash, and $144,641 paid in shares of common stock, which will be accomplished by the issuance of common stock valued at various amounts based on the timing of the funding and the related stock price.  

The Company has made certain agreements with the Lender which shall remain in effect as long as any amount is outstanding under the Loan. These agreements include an agreement not to make any change in the Registrant’s senior management. Two representatives of the Lender will have the right to attend Board of Director meetings as non-voting observers.

The Company determined that the modification of these Notes was a substantial modification in accordance with ASC 470-50, “Modifications and Extinguishments.”  As such, the Company will recognize a loss on extinguishment.

11% Convertible Debt - HEP Investments, LLC

On March 31, 2017, HEP Investments LLC (“Lender”) funded an additional of $1,000,000.  Due to this additional funding, the Company issued to the Lender a $1,000,000, an 11% convertible note and warrants to purchase 1,000,000 shares of common stock, at an exercise price of $.10 for a term of five years.  The terms of the debt are in described in Note 7 - Convertible Debt.

Stock Based Compensation

On February 27, 2017, the Company issued warrants to purchase 500,000 shares of common stock at an exercise price of $.10 with a term of 5 years pursuant to an agreement with a financial consultant.