5. Convertible Notes and Warrants
|12 Months Ended|
Dec. 31, 2015
|Debt Disclosure [Abstract]|
|Convertible Notes and Warrants||
In 2014, the Company conducted a private placement and issued an aggregate of $280,390 of its convertible notes for proceeds of $254,900 or an original issue discount (OID) of $25,490. 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, and will mature in twelve months from issuance. The notes are convertible, at the option of the note holder, into the Companys common stock at a conversion price of $0.48 per share, for a total of 584,146 shares of common stock. 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 146,037 shares of common stock. Each warrant is exercisable on a cash basis only at a price of $0.48 per share, vests immediately upon issuance, and is exercisable for one year from the date of issuance.
As a result, the Company recorded a note discount of $145,160 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, 2014, total outstanding notes payable amounted to $244,640 and unamortized note discount was $105,542.
In 2015, the Company issued similar 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 10% less than its 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 will expire in one year. As a result, the Company recorded a note discount of $696,945 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 year ended December 31, 2015, a total of $668,800 of notes payable were converted into 1.1 million shares of common stock and amortized note discount of $701,654 was recorded as interest expense.
As of December 31, 2015, total outstanding notes payable amounted to $321,024 and unamortized note discount of $100,833. Three notes in the aggregate of $211,024 had reached maturity 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 $19,184, which the Company recorded as an interest expense. As of the date of maturity, each of the notes commenced the accrual of interest thereon at an annual rate of 10% under terms of the notes. As of December 31, 2015, interest accrued for these notes amounted to $2,004.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef