WARRANT LIABILITY (Tables) | 12 Months Ended |
Dec. 31, 2014 |
Text Block [Abstract] | |
NOTES PAYABLE | NOTE 8 – NOTES PAYABLE |
During the fourth quarter of 2013, all of the $561,000 of unsecured notes payable, less 9,914 of unamortized discount, plus accrued interest of $83,715 was converted into 4,473,333 shares of common stock plus a cash repayment of $150,000. Since this conversion was with a related party it was treated as a capital transaction in accordance with FASB ASC 470-50-40-3. |
Private Placement of 8% Series A Notes Payable |
In August 2009, the Company commenced a private placement of up to $300,000 consisting of up to 6 units. Each unit consists of a $50,000, 8% Series A Note Payable, due September 30, 2011, and a non-detachable warrant to purchase 2 million shares of the Company’s common stock. During 2009, the Company sold 4 units, issued $200,000 of 8% Series A Notes Payable, issued 8 million warrants, and raised $180,000, net of commission of $20,000. In January 2010, the Company sold .5 units, issued $25,000 of 8% Series A Notes Payable, issued 1 million warrants, and raised $17,500 net of commissions of $7,500. The commissions were treated as deferred finance charges and fully expensed over the term of notes payable. |
The 8 million warrants in 2009 were valued at $15,450, fair value, using the Black-Scholes option pricing model to calculate the fair-value of the warrants, with the following assumptions: no dividend yield, expected volatility of between 30.9% and 34.5%, risk free interest rate between .95% and 1.06% and warrant life of approximately 2 years. The 1 million warrants in 2010 were valued at $20,143, fair value, using the Black-Scholes option pricing model to calculate the fair-value of the warrants, with the following assumptions: no dividend yield, expected volatility of 28.6 %, risk free interest rate of .84% and warrant life of approximately 2 years. |
In June 2011, the maturity date on the $150,000 of the 8% Series A Notes Payable and the term on the associated 6 million warrants were extended to September 30, 2015. As a result, the warrants were revalued using the Black-Scholes option pricing model to calculate the incremental fair-value of the warrants of $21,275, with the following assumptions: no dividend yield, expected volatility of 60%, risk free interest rate of 1.52% and warrant life of approximately 1.25 years. As part of the debt extension, the lender holding the 6 million warrants agreed in writing to suspend its right to exercise these warrants until such time that the Company’s authorized shares have been increased. The authorized shares of the Company’s common stock were increased on May 23, 2013 from 425,000,000 to 675,000,000. |
The relative fair value of the warrants issued in conjunction with the 8% Series A Notes Payable have been treated as a debt discount with an offsetting credit to additional paid-in capital. The debt discount related to the warrant issuances is being accreted to interest expense over the term of the notes. When the warrants were revalued the incremental amount of $21,275 was also treated as additional debt discount and is being accreted over the new term of the 8% Series A Notes Payable. As of December 31, 2012 the unaccreted debt discount related to warrants issued in conjunction with the 8% Series A Notes payable was $13,632. |
During the third quarter of 2011, $25,000 plus accrued interest of the 8% Series A Notes Payable were repaid and 3 million of the associated warrants expired unexercised. |
During the fourth quarter of 2013, the remaining series A notes payable of $150,000 was reduced by $60,000 for the exercise of 6,000,000 warrants into 6,000,000 shares of common stock. The balance of $90,000 plus accrued interest of $49,000 was converted into 1,226,363 shares of common stock. Since this conversion was with a related party it was treated as a capital transaction in accordance with FASB ASC 470-50-40-3. |
Private Placement of 25% Notes Payable |
In 2010, the Company issued $400,000 in notes payable in order to finance a patent infringement lawsuit (see Note 15 - Contingencies to these consolidated financial statements). The notes payable accrue interest at 25% per annum and mature upon the earlier of September 1, 2013 or the date on which the Company receives net proceeds from the patent infringement claim. In addition to the base interest of 25% per annum, the lenders are entitled to Bonus Interest equal to the following: |
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| a. | First monies realized by the Company from its share of the net proceeds of the lawsuit shall be allocated and paid to the Lender until the principal and base interest accruing has been fully paid. | | | | | | |
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| b. | The next monies from the net proceeds of the litigation settlement will be paid to the Company to reimburse for out-of-pocket legal costs related to the lawsuit. | | | | | | |
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| c. | The next $825,000 of proceeds will be split 50%/50% between the Company and the Lenders. | | | | | | |
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| d. | The next $1 million realized by the Company shall be allocated 90% to the Company and 10% to the Lenders. | | | | | | |
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| e. | The next $1 million realized by Company shall be allocated 85% to Company and 15% to Lenders. | | | | | | |
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| f. | All remaining proceeds realized by Company shall be allocated 80% to Company and 20% to Lenders. | | | | | | |
The Lenders have a security interest in the Company’s patent infringement claim in which the Lender has the right to the net proceeds of this lawsuit to satisfy outstanding principal and interest under the notes. |
As part of the private placement of the 25% notes payable, the Company incurred debt placement fees of $34,500 in 2010. These debt placement fees have been treated as deferred finance charges and were being amortized to interest expense over two years. The remainder of amortization $13,625 was recorded the years ended December 31, 2012. |
In December 2012, 250,000 of these notes payable and accrued interest of $122,397 were converted into 8,219,911 shares of the Company’s common stock. In March 2013, the remaining $150,000 of the notes payable and accrued interest of $70,000 were converted into 3 million shares of the Company’s common stock. Accrued interest of $13,895 was paid in cash. |
Notes payable consists of the following as of December 31: |
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| | December 31, | | | December 31, | |
2014 | 2013 |
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015 | | $ | 114,000 | | | $ | 330,249 | |
Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due) | | | 50,000 | | | | 50,000 | |
Notes payable; interest at 8% per annum; principal and accrued interest due at December 1, 2014 (past due) | | | 650,000 | | | | — | |
Notes payable, interest at 5% and 8% per annum; principal and interest due April 2015 | | | 123,000 | | | | — | |
Less: Debt discount | | | (10,447 | ) | | | — | |
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| | | 926,553 | | | | 380,249 | |
Less: Current portion | | | 926,553 | | | | 50,000 | |
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Long-term portion | | $ | — | | | $ | 330,249 | |
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At December 31, 2014 and 2013 accrued interest on notes payable was $155,992 and $317,344. |
The notes payable balance as of December 31, 2014 includes a Series A note payable in the amount of $50,000 with interest of 8% per annum. This note matured in October 2011 and is past due. Accrued interest associated with this note was $20,667 as of December 31, 2014. The Company has been unable to locate this shareholder. |
On June 10, 2014, the Company issued a note payable for $250,000, which included fully vested warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.10 per share, expiring in five years. The warrants were valued at $39,650 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 248.2%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $34,222 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $34,222 was accreted through interest expense. The note and accrued interest at 8% per annum was originally due on December 11, 2014, but the Company received approval to extend the maturity until December 31, 2014. As of December 31, 2014 the note is in default. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $17,741 and the note payable balance was $250,000. This note is in default. |
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On August 5, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $29,725 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $22,914 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $22,914 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. As of December 31, 2014 the note is in default. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $11,178 and the note payable balance was $100,000. This note is in default. |
On August 12, 2014, the Company issued notes payable for $50,000, which included fully vested warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $26,817 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $17,455 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $17,455 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. As of December 31, 2014 the note is in default. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $5,585 and the note payable balance was $50,000. This note is in default. |
On August 14, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $47,676 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $32,274 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $32,274 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. As of December 31, 2014 the note is in default. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $11,226 and the note payable balance was $100,000. This note is in default. |
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On September 8, 2014, the Company issued notes payable for $150,000, which included fully vested warrants to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $62,544 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $44,140 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $44,140 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. As of December 31, 2014 the notes are in default. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $17,385 and the note payable balance was $150,000. This note is in default. |
On December 5, 2014, the Company issued a note payable for $23,000 to a stockholder, which bears interest at 5.0% and is due on April 5, 2015. This note is in default. |
On December 31, 2014, the Company issued a note payable for $100,000, which include fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share expiring in five years. The warrants were valued at $11,812 using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 229.0%, risk free interest rate of 1.68% and expected life of 5 years. The relative fair value of the warrants was $10,563 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $116 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on April 1, 2015. This note is currently in default. The warrants are subject to anti-dilution adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is revalued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $11,812 and the note payable balance was $89,553, net of a discount of $10,447. This note is in default. |