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 do not bear any interest: however, the implied interest rate used was 10% because the notes were issued for a purchase price of 10% less than their face value. The notes are unsecured and mature in twelve months from issuance. The notes are convertible, at the option of the note holder, into the Company’s common stock at conversion prices ranging from $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 prices ranging from $0.10 through $0.48 per share. The warrants vest immediately upon issuance, and are exercisable for one year from the date of issuance.

As a result, in prior periods, 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 amortized 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.

During the nine-month period ended September 30, 2016, the Company issued similar convertible promissory notes in the amount of $1,587,045 for cash proceeds of $1,442,769 or a discount of $144,276. The notes do not bear any interest; however, the implied interest rate used was 10% because the notes were issued for purchase prices of 10% less than their face value. The notes are unsecured, mature in twelve months from issuance and are convertible at $0.10 per share. In addition, the Company also granted these note holders warrants to purchase 7,935,225 shares of the Company’ common stock. The warrants are fully vested, exercisable at $0.10 per share and will expire in one year from the date of their issuance. As a result, the Company recorded a note discount of $1,587,045 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 on the effective interest method.

During the nine-month period ended September 30, 2016, a total of $1,367,044 of notes payable were converted into 13,670,449 shares of common stock and amortized note discount of $1,433,763 was recorded as interest expense.

As of September 30, 2016, total outstanding notes payable amounted to $541,024 and an unamortized note discount of $254,116. Included in the Company’s outstanding notes payable are three notes in the aggregate of $211,024 that had reached maturity without conversion and are past maturity and are currently due with accrued interest in the amount of $17,836. During the nine-month period ending September 30, 2016, the Company accrued interest of $15,831 pursuant to the terms of the notes. As of September 30, 2016, these notes were convertible to 3,776,792 shares of common stock in aggregate.