| NOTES PAYABLE AND LOAN FACILITY | NOTE 8 NOTES PAYABLE AND LOAN FACILITY Related
Party Line of Credit (CMA Note Payable) On
April 29, 2011, the Company executed with CMA Investments, LLC, a Georgia limited liability company (CMA), a line
of credit with a principal amount of up to $800,000 (the CMA Note). CMA is a limited liability company of which
three of the directors of the Company (CMA directors) were initially the members. Pursuant to the terms of the CMA
Note, the Company may draw up to a maximum principal amount of $800,000. Interest, is computed at LIBOR plus 5.25% (5.72% at June
30, 2016), on amounts drawn and fees. The weighted average interest rate in effect on the borrowings for the six months ended
June 30, 2016 was 5.69%. Other
terms of the CMA Note include:
● The
Note is unsecured;
● No
payments of principal are due until the second anniversary of the Note, at which time
all outstanding principal is due and payable; and
● As
compensation to the directors for providing the Note, the Company issued warrants to
purchase 2,600,000 shares of the Companys common stock to the CMA Directors at
$0.45 per share, which was the closing price of the Companys stock on April 29,
2011, which vest 20% immediately and 10% upon each draw by the Company of $100,000 under
the Note. Because the warrants were issued and valued prior to the receipt of funds under
this loan, no discount could be recorded and, accordingly, the value of the warrants
was capitalized as a financing cost. The costs are being amortized on a straight line
basis over the term of the Note. On
September 14, 2011, the Companys Board of Directors approved increasing the line of credit with CMA by $200,000 to a maximum
principal amount of $1,000,000 and the Companys Chairman and Chief Executive Officer became a member of CMA. As compensation
to the CMA Directors for increasing the amount available under the CMA Note, the Board of Directors approved modifying the exercise
price for the 2,600,000 compensatory stock purchase warrants previously issued to the Directors from $0.45 to $0.27 per share,
which was the closing price of the Companys common stock on that date and the Company also issued warrants to purchase
an additional 1,600,000 shares of the Companys stock at $0.27 per share, which was the closing price of the Companys
common stock on September 14, 2011, which vest upon the original terms of the CMA Note. The costs incurred in the modification
of the exercise price of the 2,600,000 compensatory stock purchase warrants issued on April 29, 2011 and the additional 1,600,000
warrants issued on September 14, 2011 are being amortized on a straight line basis over the remaining term of the CMA Note. On
November 2, 2012, the Board of Directors approved an increase in the CMA line of credit from $1,000,000 to $1,500,000. As compensation
to the CMA Directors for increasing the amount available under the CMA Note, warrants to purchase an additional 2,100,000 shares
of the Companys stock at $0.35 per share were issued and recorded as deferred financing cost to be amortized through interest
expense over the remaining term of the CMA Note. There was no amortization of the financing costs associated with the CMA Note
for the three and six months ended June 30, 2016 and June 30, 2015. On
April 29, 2013, the maturity date of the CMA Note was extended to April 29, 2014. As compensation to the CMA Directors for extending
the maturity date of the CMA Note, the Board of Directors approved modifying the exercise price for the 6,300,000 compensatory
stock purchase warrants previously issued to the Directors to $0.10 per share and the CMA Directors forfeited 630,000 of the warrants.
Amortization of the financing costs associated with extending the CMA Note was amortized through interest expense. On
April 30, 2014 the maturity date of the CMA Note was extended to April 30, 2015. No consideration was awarded the CMA members
based on this extension. On
April 29, 2015 the maturity date of the CMA Note was extended to April 29, 2016. No consideration was awarded the CMA members
based on this extension. On
April 29, 2016, the maturity date for the CMA Note has been extended to April 29, 2017. No consideration was awarded to the CMA
members based on this extension. Shareholder
Notes Payable The
following table summarizes the shareholder notes payable:
June
30, December
31,
Shareholder
notes payable $ 700,068 $ 700,068
Accrued
interest 248,574 213,667
Total
Shareholder Notes Payable $ 948,642 $ 913,735 Such
notes are (i) unsecured, (ii) bear interest at an annual rate of ten percent (10%) per annum, and (iii) are convertible into shares
of common stock at a conversion rate ranging between $0.05 and $0.10 of principal and interest for each such share. The
current average conversion price for the above referenced Shareholder and Promissory Notes with an outstanding balance as of June
30, 2016 of $948,642 including accrued interest, is approximately $0.055 per share or 17,122,537 shares of the Companys
common stock. The face value of the Shareholder Notes at June 30, 2016 is $700,068. |
