Spring 2015 Convertible Notes:

In the second quarter of 2015, the Company issued convertible notes in the aggregate of $550,000 for cash consideration of $475,500, net of original issue discount of $50,000 and commission paid of $24,500. The notes do not bear any interest; however, the Company used an implied interest rate of 10%. The notes are unsecured, mature one year after issuance, and are convertible into 1,833,333 shares of common stock at a conversion price of $0.30 per share. The Company determined that the notes contained a beneficial conversion feature of $352,139 since the market price of the Company’s common stock was higher than the effective conversion price of the notes when issued.

Investors in the convertible notes received, for no additional consideration, warrants to purchase a total of 916,667 shares of common stock. Each warrant is exercisable on a cash basis only at an exercise price of $0.30 per share, are exercisable immediately upon issuance, and expire one year from the date of issuance. The relative fair value of the warrants issued with the convertible notes was determined to be $118,806 based on relative fair value method.

The fair value of the warrants, the beneficial conversion feature, the original issue discount and commission paid, aggregated $545,445 and is considered a debt discount. In June 30, 2015, the full balance of these notes in the amount of $550,000 was converted to 1,833,333 shares of common stock and the full aggregated debt discount amortized as interest expense. During the three and six month periods ending June 30, 2015, the total note discount amortized as interest expense was of $545,455. As of June 30, 2015 there was no remaining balance due on these notes.

Fall 2014 Convertible Notes:

In the fourth quarter of 2014, the Company issued convertible notes in the aggregate of $280,390 for cash consideration of $254,900, resulting in an original issue discount of $25,490. The notes do not bear any interest; however, the Company used an implied interest rate of 10%. The notes are unsecured, mature one year after issuance, and were convertible into 584,147 shares of common stock at a conversion price of $0.48 per share. The Company determined that the notes contained a beneficial conversion feature of $94,845 since the market price of the Company’s common stock was higher than the conversion price of the notes when issued.  

Investors in the convertible notes received, for no additional consideration, warrants to purchase a total of 146,037 shares of common stock. Each warrant is exercisable on a cash basis only at an exercise price of $0.48 per share, are exercisable immediately upon issuance, and expire one year from the date of issuance. The fair value of the warrants issued with the convertible notes was determined to be $24,826.

The fair value of the warrants, the beneficial conversion feature, and the original issue discount, aggregated $145,161 and was considered a debt discount. The debt discount is being amortized to interest expense over the term of the notes, or in full upon the conversion of a note. As of December 31, 2014 the balance due on these notes was $244,640 and unamortized note discount was $105,542. 

During the six-month period ended June 30, 2015, the Company converted $52,800 of these notes into 110,000 shares of common stock. As of June 30, 2015 the balance due on these notes was $191,840.

During the three and six month periods ended June 30, 2015, amortization of the note discount totaled $24,829 and $72,437, respectively. As of June 30, 2015, the unamortized note discount was $33,105.