Quarterly report pursuant to Section 13 or 15(d)

5. Convertible Notes

v3.4.0.3
5. Convertible Notes
3 Months Ended
Mar. 31, 2016
Debt Disclosure [Abstract]  
Convertible Notes

 

March 31, 2016

(unaudited)

   

December 31

2015

 
Balance due on convertible notes   $ 680,834     $ 321,024  
Accrued interest     7,281       2,004  
Subtotal     688,115       323,028  
Unamortized note discounts     (451,113 )     (100,833 )
Balance on convertible notes, net of note discounts   $ 237,002     $ 222,195  

 

During 2014 and 2015, the Company conducted a private placement and issued approximately $1 million of its unsecured convertible notes for proceeds of $920,900 or an original issue discount (“OID”) of $85,490. The notes did not bear any interest, however, the implied interest rate used was 10% since the notes were issued at 10% less than its face value, are unsecured, and matured in twelve months from their issuance. The notes are convertible, at the option of the note holder, into the Company’s common stock at a conversion price starting at $0.10 per share through $0.48 per share. In addition, each note holder also received a warrant to purchase common stock equivalent to 25% of the number of shares the notes are convertible into or a total of 1,942,704 shares of common stock. Each warrant is exercisable on a cash basis only at a price starting at $0.10 through $0.48 per share, vested immediately upon issuance, and exercisable for one year from the date of issuance.

 

As a result, the Company recorded a note discount of $842,105 to account for the relative fair value of the warrants, the notes’ beneficial conversion feature (“BCF”), and OID. The note discounts are being amortized over the life of the note or will be amortize in full upon the conversion of the corresponding notes to common stock. At December 31, 2015, total outstanding notes payable amounted to $321,024 and unamortized note discount was $100,833.

 

As reported in our Form 8-K filed on April 25, 2016, in the three-month period ended March 31, 2016, the Company issued similar convertible promissory notes in the aggregate of $838,715 for cash proceeds of $762,468 or a discount of $76,247. The notes do not bear any interest; however, the implied interest rate used was 10% since the notes were issued at 10% less than its face value, are unsecured, mature in twelve months from their issuance and convertible at $0.10 per share. In addition, the Company also granted these note holders warrants to purchase 4,193,575 shares of the Company’ common stock. The warrants are fully vested, exercisable at $0.10 per share and will expire in one year. As a result, the Company recorded a note discount of $838,715 to account for the relative fair value of the warrants, the notes’ BCF and OID. The note discounts are being amortized over the life of the note or will be amortize in full upon the conversion of the corresponding notes to common stock.

 

During the three-month period ended March 31, 2016, a total of $478,905 of notes payable were converted into 4,789,049 shares of common stock and amortized note discount of $488,435 was recorded as interest expense.

 

As of March 31, 2016, total outstanding notes payable amounted to $680,834 and unamortized note discount of $451,113. Included in the Company’s outstanding notes payable are three notes in the aggregate of $211,024 that had reached maturity without conversion as of March 31, 2016 and are currently due. As a result, the Company accrued interest of $7,281 pursuant to the terms of the note agreement.