Quarterly report pursuant to sections 13 or 15(d)

CONVERTIBLE PROMISSORY NOTES AND DERIVATIVE LIABILITY (Tables)

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CONVERTIBLE PROMISSORY NOTES AND DERIVATIVE LIABILITY (Tables)
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
CONVERTIBLE PROMISSORY NOTES TO SIX INVESTORS
  Principal Amount   Issue Date Maturity Date
$ 100,000   12-13-10 12-13-12
$ 25,000   4-11-11 4-11-13
$ 35,000   4-15-11 4-15-13
$ 10,000   4-22-11 4-22-13
$ 50,000   4-27-11 4-27-13
$ 10,000   6-6-11 6-6-13

 

These notes bear interest at a rate of 5% per annum, with all principal and accrued interest payable on the maturity date. Principal and unpaid accrued interest due under these notes shall be automatically converted into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to one-third of the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into shares of our most recently closed equity financing, based on a conversion price equal to one-third of the price per share of the most recently closed equity financing.

 

In addition, we previously owed the principal sum of $41,537 to Molecular Medicine Research Institute (MMRI”), who was issued a series of Convertible Promissory Notes under the terms of a Note and Warrant Purchase Agreement as follows:

 

  Principal Amount Issue Date Maturity Date  
$ 16,037 11-1-10 11-1-12 Note principal and accrued interest assigned June, 2012
$ 4,250 12-1-10 12-1-12 Note principal and accrued interest assigned June, 2012
$ 4,250 1-1-11 1-1-13 Note principal and accrued interest assigned June, 2012
$ 4,250 2-1-11 2-1-13  
$ 4,250 3-1-11 3-1-13  
$ 4,250 4-1-11 4-1-13  
$ 4,250 5-1-11 5-1-13  

 

 

 

These notes bear interest at a rate of 5% per annum, with all principal and accrued interest payable on demand by the holder on or after the maturity date. Principal and unpaid accrued interest due under these notes shall be converted, at the option of the holder, into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into a new class of Preferred Stock, with the conversion price per share to be based upon a pre-money valuation of the company at that time of $2,000,000. These notes also include 20% warrant coverage which expire seven years from the date of the note. In June 2012, $24,537 of the note principal plus accrued interest was assigned to a new investor. Along with this assignment the warrants associated with these specific notes have been cancelled.

 

We are currently party to a Sponsored Research Agreement with MMRI under which we are provided office and laboratory space, use of research equipment, and other items within MMRI’s research facility in exchange for a monthly Sponsor Research Fee. The notes detailed above, in conjunction with certain warrants to purchase stock, were issued in payment of 50% of the respective monthly fees due under this agreement.

In addition, we owe the principal sum of $12,240 to The Parkinson’s Institute, which was issued a Convertible Promissory Note under the terms of a Note and Warrant Purchase Agreement dated August 25, 2010. This note bears interest at a rate of 5% per annum, with all principal and accrued interest payable on demand by the holder on or after the maturity date of August 25, 2012. Principal and unpaid accrued interest due under this note shall be automatically converted into our equity securities at the closing of our next equity financing in which the gross proceeds exceed $1,000,000 (the Next Equity Financing”), based on a conversion price equal to the price per share of the stock sold to outside investors in the Next Equity Financing. If the Next Equity Financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted at our option into a new class new class of Preferred Stock, with the conversion price per share to be based upon a pre-money valuation of the company at that time of $2,000,000. In addition the note holder has warrant coverage equal to 5% of the note principal with a warrant exercise price equal to the next equity financing per share price, and expiration seven years from the date of the note. In June 2012, $12,240 of the note principal plus accrued interest was assigned to a new investor. Along with this assignment the warrants associated with these notes have been cancelled.

 

On June, 2012, we entered into a convertible note agreement with an investor for a principal amount of $39,831. This note bears an interest rate of 12% per annum, compounded monthly, and has a maturity date of June 5, 2013. The note holder has the option to convert the note into common stock at any time, conversion at 55% of the lowest trading price over the prior three trading days from the date of conversion. We have the option to prepay note at any time in the amount of 150% of the principal and unpaid accrued interest. This note represents the assignment of the Parkinson’s Institute note and the 12-1-10 and 1-1-11 MMRI notes discussed earlier.

 

Also, in June 2012, we entered into a convertible note agreement with an investor for a principal amount of $21,500. This note This note bears an interest rate of 12% per annum and has a maturity date of January 6, 2013. The note holder has the option to convert the note into common stock at any time, conversion at 55% of the average of the three lowest trading prices over the prior ten trading days from the date of conversion. We have the option to prepay note at any time in the amount of 150% of the principal and unpaid accrued interest within the first ninety days.

 

We also owe the principal sum of $500,000 to a total of ten (10) investors who were issued Secured Convertible Promissory Notes under the terms of a Senior Secured Convertible Promissory Note Agreement dated December 28, 2010, as amended May 20, 2011 as follows:

 

  Principal Amount   Issue Date Maturity Date
$ 125,000   12-28-10 12-6-11
$ 62,500   12-28-10 12-6-11
$ 100,000   4-15-11 12-6-11
$ 25,000   4-18-11 12-6-11
$ 25,000   5-13-11 12-6-11
$ 50,000   5-19-11 12-6-11
$ 25,000   5-24-11 12-6-11
$ 25,000   5-24-11 12-6-11
$ 31,250   6-7-11 12-6-11
$ 31,250   6-9-11 12-6-11

 

Principal and interest, accrued at the rate of 5% per annum, are due and payable on December 6, 2011, unless earlier converted into equity securities of the company. Principal and unpaid accrued interest shall be converted, at the option of the holder, into equity securities of the company at the closing of our next equity financing in which gross aggregate proceeds to the Company exceed $1,750,000 and the Company registers its stock for sale pursuant to the Securities and Exchange Act of 1934. The conversion price shall be equal to one-third of the price per share of this financing. If this financing does not occur on or before the maturity date, the principal and unpaid accrued interest can be converted, at the option of the holders of a majority of the aggregate principal amount of the senior secured convertible promissory notes, into common stock of the Company. These notes were formerly secured by collateral consisting of substantially all assets of the company. Under the May 20, 2011 amendment to the Senior Secured Convertible Promissory Note Agreement, this security interest was terminated. Under the terms of the agreement as amended, we may not incur any indebtedness for borrowed money except pursuant to an agreement that provides that repayment of such indebtedness will be subordinated to repayment of the Notes. In addition, we may not encumber any of our property during such time as the Notes remain due and owing. As provided in the amendment the note holders have warrant coverage equal to 100% of the note principal at an exercise price equal to 100% of that to outside investors in the closing of the next equity financing of $1,175,000, but not to be less than $0.60 per share. The warrants expire five years from the date of the next equity financing closing. We are currently in default on these notes. See footnote 9 Commitments and Contingencies for further information.

 

During the twelve months ended December 31, 2011, the Company issued convertible promissory notes to various investors for aggregate proceeds of $90,000. Principal and interest on these convertible notes, accrued at the rate of 6% per annum, are due and payable 180 days from the issuance date, unless earlier converted into equity securities of the Company, at the option of the Holder of the promissory note. Conversion of the principal and interest will be at either $0.10 or $0.20 per share. In addition, the Company issued warrants to the note holders to purchase a number of shares of capital stock issued to investors at the equivalent to 100% of the principal amount of the notes divided by the respective price per share of the stock which the principal of the note converts at. The warrants expire one year from the date of the note. During the six month ended June 30, 2012, $57,000 of these convertible notes converted to Company Common shares.

 

  Principal Amount     Issue Date     Maturity Date     Converted to Equity     Conversion Date
$ 21,000     7-28-11     1-24-12   $ 21,000     February 2012
$ 21,000     7-28-11     1-24-12   $ 21,000     February 2012
$ 10,000     8-16-11     2-12-12   $        
$ 20,000     8-18-11     2-14-12            
$ 5,000     9-6-11     3-4-12   $ 5,000     February 2012
$ 5,000     9-9-11     3-7-12   $ 5,000     February 2012
$ 3,000     9-26-11     3-24-12            
$ 5,000     11-2-11     4-30-12   $ 5,000     February 2012

 

During the period October, 2011 through June 30, 2012, the Company issued convertible promissory notes to various investors for aggregate proceeds of $211,750. Principal and interest on these convertible notes, accrue at the rate of 6% per annum, are due and payable 180 days from the issuance date, unless earlier converted into equity securities of the Company, at the option of the Holder of the promissory note. Conversion of the principal and interest will be at either $0.02 or $0.05 per share.

 

  Principal Amount     Issue Date     Maturity Date     Converted to Equity     Conversion Date
$ 5,000     10-27-11     4-24-12   $ 5,000     February 2012
$ 10,000     11-23-11     5-21-12            
$ 30,000     11-30-11     5-28-12   $ 30,000     February 2012
$ 10,000     12-8-11     6-5-12   $ 10,000     February 2012
$ 5,000     12-14-11     6-11-12   $ 5,000     February 2012
$ 5,000     12-30-11     6-27-12   $ 5,000     February 2012
$ 100,000     1-17-12     7-15-12            
$ 3,750     2-21-12     8-19-12   $ 3,750     February 2012
$ 25,000     4/2/12     9/29/12   $ 25,000     April 012
$ 5,000     5/18/12     11/14/12   $        
$ 13,000     6/6/12     12/3/12            
                                         

 

In March, 2012, $9,500 of convertible note principle was issued as part of a unit debt instrument which consisted of a return on investment (“ROI”) agreement and a convertible promissory note in return for $10,000. The ROI has a redemption value of $10,500 due on demand and the convertible promissory note is for $9,500, non-interest bearing, due September 20, 2012, and is convertible to common shares after six months from the date of the note at a conversion price that is 50% of the lowest trading price over the 20 prior trading dates from the date of conversion notice.

 

During the six months ended June 30, 2012, the Company issued two convertible promissory notes to one investor totaling $39,325 Principal and interest on these convertible notes accrue at the rate of 12% per annum. The holder of the note can convert the note to common shares of the Company at any at 50% of lowest trading bid price for prior twenty trading days before conversion. Both notes were converted to on the same day as the issuance date.

 

  Principal Amount Issue Date Maturity Date   Converted to Equity Conversion Date
$ 15,000 3/9/12 10-27-12 $ 15,000 3/9/12
$ 24,325 5/4/12 11/4/12 $ 24,250 5/4/12

 

During the six months ended June 30, 2012, the Company issued four convertible promissory notes to one investor totaling $91,500. Principal and interest on these convertible notes accrue at the rate of 8% per annum. The holder of the note can convert the note to common shares of the Company any time after the initial 180 days of the note at a conversion price that is a percentage of an average of the market low over for a certain number days over a greater number of prior number of trading days from the date of notice to convert.

 

  Principal Amount   Issue Date Maturity Date
$ 37,500   2-7-12 10-27-12
$ 17,000   3/19/12 12-21-12
$ 13,000   5/3/12 2/7/13
$ 24,000   6/13/12 3/15/13