At January 1, 2015, total outstanding notes payable on convertible notes issued in 2014 amounted to $245,000 and unamortized note discount was $106,000.

During the year ended December 31, 2015, the Company issued convertible promissory notes in the aggregate of $726,000 for cash proceeds of $660,000 or a discount of $66,000. The notes do not bear any interest; however, the implied interest rate used was 10% since the notes were issued at 10% less than their face value, are unsecured, mature in twelve months from issuance and convertible at $0.30 and $0.10 per share. In addition, the Company also granted these note holders warrants to purchase 1,796,667 shares of the Company’ common stock. The warrants are fully vested, exercisable at $0.30 and $0.10 per share and expired one year from the date of issuance. As a result, the Company recorded total note discount of $697,000 to account for the relative fair value of the warrants, the notes’ BCF and OID. The note discounts were amortized over the life of the notes or were amortized in full upon the conversion of the corresponding notes to common stock. During 2015, a total of $669,000 of notes payable were converted into 2.6 million shares of common stock and amortized note discount of $702,000 was recorded as interest expense. As of December 31, 2015, total outstanding notes payable amounted to $321,000 and unamortized note discount of $101,000. Three notes in the aggregate of $211,000 matured without conversion as of December 31, 2015. As a result, the Company increased the principal amount of each note by 10% under terms of the notes in the aggregate amount of $19,000 and accrued interest of $2,000. As of December 31, 2015, interest accrued for these notes amounted to $2,000 which was reported as part of convertible debentures in the accompanying consolidated balance sheet.

During the year ended December 31, 2016, the Company issued similar convertible promissory notes in the aggregate of $1,587,000 for cash proceeds of $1,418,000 and conversion of a deposit received from an investor in 2015 amounting to $25,000 and a discount of $144,000. The notes do not bear any interest; however, the implied interest rate used was 10% since the notes were issued 10% less than its face value, are unsecured, mature in twelve months from issuance and convertible at $0.10 per share. In addition, the Company also granted these note holders warrants to purchase 7.9 million shares of the Company’ common stock. The warrants are fully vested, exercisable at $0.10 per share and expire one year from the date of issuance. As a result, the Company recorded a note discount of $1,587,000 to account for the relative fair value of the warrants, the notes’ BCF and OID. The note discounts are amortized over the life of the notes or were amortized in full upon the conversion of the corresponding notes to common stock. During 2016, a total of $1,491,000 of notes payable were converted into 14.9 million shares of common stock and amortized note discount of $1,596,000 was recorded as interest expense. As of December 31, 2016, total outstanding notes payable amounted to $417,000 and unamortized note discount of $92,000. During the year ended December 31, 2016, the Company accrued interest of $21,000. As of December 31, 2016, total accrued interest amounted to $23,000 which was reported as part of convertible debentures in the accompanying consolidated balance sheet. The Company is currently in negotiations with the noteholders to settle the matured notes payable.