Notes Payable | 12 Months Ended |
Dec. 31, 2014 |
Notes Payable [Abstract] | |
NOTES PAYABLE | NOTE 8 — NOTES PAYABLE |
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Notes payable were comprised of the following as of December 31, 2014 and 2013: |
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| | 2014 | | 2013 |
Seaside Bank note payable. | | $ | 980,000 | | | $ | 980,000 | |
August 2008 Unsecured Promissory Note | | | — | | | | 500,000 | |
Hunton & Williams notes payable | | | 384,972 | | | | 384,972 | |
Asher notes payable | | | 151,000 | | | | 143,000 | |
Daniel James Management note payable | | | 75,000 | | | | — | |
Fourth Man, LLC note payable | | | 75,000 | | | | 35,000 | |
Magna Group | | | 205,000 | | | | — | |
Total notes payable | | | 1,870,972 | | | | 2,042,972 | |
Less unamortized debt discount | | | (339,160 | ) | | | (112,131 | ) |
Total notes payable net of unamortized debt discount | | $ | 1,531,812 | | | $ | 1,930,841 | |
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Seaside Bank |
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On October 25, 2010, the Company entered into a Loan Agreement with Seaside National Bank and Trust for a $980,000 loan at 4.25% per annum interest that was used to refinance the Company’s loan with Bank of America. The obligation is guaranteed by certain shareholders of the Company. The Company renewed the loan with Seaside National Bank and Trust during the first quarter of 2014 to extend the maturity date to December 23, 2015. |
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August 2008 Unsecured Promissory Note |
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On August 20, 2008, the Company borrowed $1.0 million from a third party pursuant to the terms of an unsecured Promissory Note and Agreement. Outstanding principal and interest on the loan, which accrues at the rate of 13.5% per annum, would be payable in one balloon payment upon the Company’s repayment of the BlueCrest Loan, which was scheduled to mature in May 2010, however the Company was not obligated to make payments until BlueCrest Loan is paid off. |
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In the event the Company completes a private placement of its common stock and/or securities exercisable for or convertible into its common stock which generates at least $19.0 million of gross proceeds, the Company may prepay, without penalty, all outstanding principal and interest due under the loan using the same type of securities issued in the subject private placement. Because repayment of the loan could occur within 12 months from the date of the balance sheet, the Company has classified this loan as short term. |
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Subject to certain conditions, at the end of each calendar quarter during the time the loan is outstanding, the Company may, but is not required to, pay all or any portion of the interest accrued but unpaid as of such date with shares of its common stock. In April 2009, as consideration for the authorization to amend certain documents related to the Note, the Company issued to the Note holder a warrant to purchase 451,053 shares of common stock at an exercise price of $0.5321 per share. The warrant, which became exercisable immediately upon issuance, has a ten year term. This warrant had a fair value of $195,694, which was accounted for as additional paid in capital and reflected as a component of debt discount and has been fully amortized as interest expense ratably over the term of the loan. |
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In 2013, 1,000,000 shares of common stock were issued to the debt holder, in exchange for $500,000 in principal and $598,125 of accrued interest relating to a previously issued note resulting in a gain of $1,078,625. A gain of $1,078,625 was included in the net gain on settlement of debt and trade payables on the statement of operations for the year ended December 31, 2013. |
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On June 16, 2014, 14,539,191 shares of common stock were issued to the debt holder, in exchange for the remaining $500,000 principal and $81,568 of accrued interest resulting in a gain of $255,890. A gain of $255,890 was included in the net gain on settlement of debt and trade payable on the statement of operations for the year ended December 31, 2014. |
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Hunton & Williams Notes |
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At December 31, 2014 and 2013, the Company has two outstanding notes payable with interest at 8% per annum due at maturity. The two notes, $61,150 and $323,822, are payable in one balloon payment upon the date the Noteholder provides written demand, however the Company is not obligated to make payments until the Northstar (or successor) Loan is paid off. |
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Asher Notes |
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2013 Notes |
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During the year ended December 31, 2013, the Company entered into a Securities Purchase Agreements with Asher Enterprises, Inc. (“Asher”), for the sale of 8% convertible notes in aggregate principal amount of $255,500 (the “Asher Notes”). |
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The Asher Notes bear interest at the rate of 8% per annum. As of the December 31, 2013 all interest and principal must be repaid nine months from the issuance date, the last note due August 7, 2014. The Notes are convertible into common stock, at Asher’s option, at a 42% to 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Asher Notes. These embedded derivatives included certain conversion features and reset provision. |
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The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date. At the inception of the Asher Notes, the Company determined the aggregate fair value of $335,089 of the embedded derivatives. |
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The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 154.80% to 164.29%, (3) weighted average risk-free interest rate of 0.09% to 0.17%, (4) expected lives of 0.67 to .77 years, and (5) estimated fair value of the Company’s common stock from $0.01 to $0.0373 per share. The initial fair value of the embedded debt derivative of $335,089 was allocated as a debt discount up to the proceeds of the note ($255,500) with the remainder ($79,589) charged to current period operations as interest expense. For the years ended December 31, 2014 and 2013, the Company amortized $92,794 and $162,706 of debt discount to current period operations as interest expense, respectively. As of December 31, 2014 the gross balance of the 2013 Asher Notes was $-0-. |
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2014 Notes |
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During the year ended December 31, 2014, the Company entered into a Securities Purchase Agreements with Asher Enterprises, Inc. (“Asher”) or affiliates, for the sale of 8% convertible notes in aggregate principal amount of $334,000 (the “Asher Notes”). |
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The Asher Notes bear interest at the rate of 8% per annum. As of December 31, 2014, all interest and principal must be repaid nine months from the issuance date, with the last note being due August 12, 2015. The Notes are convertible into common stock, at Asher’s option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Asher Notes. |
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These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date, which at December 31, 2014 was $149,770. At the inception of the Asher Notes, the Company determined the aggregate fair value of $566,294 of the embedded derivatives. |
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For the year ended December 31, 2014, the Company amortized $248,153 of debt discount to current period operations as interest expense. |
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The remaining principle balance as of December 31, 2014 was $151,000. |
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Fourth Man, LLC |
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2013 Notes |
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On October 11, 2013, the Company entered into a Securities Purchase Agreement with Fourth Man, LLC. (“Fourth Man”), for the sale of an 8% convertible note in the principal amount of $35,000 (the “Note”). |
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The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 10, 2014. The Note is convertible into common stock, at Fourth Man’s option, at a 47% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Fourth Man Note. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Fourth Man Note and to fair value as of each subsequent reporting date. At the inception of the Fourth Man Note, the Company determined the aggregate fair value of $52,894 of the embedded derivatives. |
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The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 164.29%, (3) weighted average risk-free interest rate of 0.07%, (4) expected life of 0.50 year, and (5) estimated fair value of the Company’s common stock of $0.0121 per share. The initial fair value of the embedded debt derivative of $52,894 was allocated as a debt discount up to the proceeds of the note ($35,000) with the remainder ($17,894) charged to current period operations as interest expense. For the years ended December 31, 2014 and 2013, the Company amortized $19,337 and $15,663 of debt discount to current period operations as interest expense, respectively. |
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2014 Notes |
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During the year ended December 31, 2014, the Company entered into Securities Purchase Agreements with Fourth Man, LLC. (“Fourth Man”), for the sale of an 8% to 9.5% convertible notes in the aggregate principal amount of $100,000 (the “Note”). |
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The Notes bears interest at the rate of 8% to 9.5% per annum. As of the year ended December 31, 2014, all interest and principal must be repaid one year from the issuance date, with the last note being due August 28, 2015. The Notes are convertible into common stock, at Fourth Man’s option, at a 47% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Fourth Man Notes. These embedded derivatives included certain conversion features and reset provision. |
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The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Fourth Man Notes and to fair value as of each subsequent reporting date which at December 31, 2014 was $93,505. At the inception of the Fourth Man Notes, the Company determined the aggregate fair value of $168,501 of the embedded derivatives. |
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For the year ended December 31, 2014, the Company amortized $50,549 of debt discount to current period operations as interest expense. |
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The remaining principle balance as of December 31, 2014 was $75,000. |
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Daniel James Management |
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2014 Notes |
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During the year ended December 31, 2014, the Company entered into Securities Purchase Agreements with Daniel James Management (“Daniel”) for the sale of 8% to 9.5% convertible notes in aggregate principal amount of $135,000 (the “Daniel Notes”). |
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The Daniel Notes bear interest at the rate of 8% to 9.5% per annum. As of the year ended December 31, 2014, all interest and principal must be repaid one year from the issuance date, with the last note being due November 30, 2015. The Daniel Notes are convertible into common stock, at holder’s option, at a 47% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. The Company has identified the embedded derivatives related to the Daniel Note. These embedded derivatives included certain conversion features and reset provision. |
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The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Daniel Notes and to fair value as of each subsequent reporting date which at December 31, 2014 was $95,866. At the inception of the Daniel Notes, the Company determined the aggregate fair value of $236,211 of the embedded derivatives. |
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For the year ended December 31, 2014, the Company amortized $76,758 of debt discount to current period operations as interest expense. |
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The remaining principle balance as of December 31, 2014 was $75,000. |
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Magna Capital Group |
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2014 Notes |
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During the year ended December 31, 2014, the Company entered into a Securities Purchase Agreement with Magna Capital Group (“Magna”) for the sale of a convertible note in aggregate principal amount of $307,500 (the “Magna Note”) and an original interest discount (“OID”) of $102,500. $40,000 of the outstanding principal amount of the Convertible Note (together with any accrued and unpaid interest with respect to such portion of the principal amount) will be automatically extinguished upon the filing of the registration statement, following the closing of the Securities Purchase Agreement. In addition, $62,500 of the outstanding principal amount of the Convertible Note (together with any accrued and unpaid interest with respect to such portion of the principal amount) will be automatically extinguished if (i) the registration statement is declared effective by the SEC on or prior to the earlier of (A) the 120th calendar day after October 7, 2014 and (B) the fifth business day after the date we are notified by the Securities and Exchange Commission, or the Commission, that the registration statement will not be reviewed or will not be subject to further review, and this prospectus is available for use by Magna for the resale by Magna of all of the shares of our common stock issued or issuable upon conversion of the Convertible Note and (ii) no event of default under the Convertible Note or an event that with the passage of time or giving of notice would constitute an event of default under the Convertible Note has occurred on or prior to such date. On November 21, 2014, the Company filed its registration statement and on December 22, 2014, was declared effective. As such, the principle amount of the note was reduced by an aggregate of $102,500. |
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The Convertible Note matures on August 7, 2015 and, in addition to the approximately 33.33% original issue discount, accrues interest at the rate of 12% per year. The Convertible Note is convertible at any time, in whole or in part, at Magna’s option into shares of Company common stock at a fixed conversion price of $0.01035 per share, subject to adjustment pursuant to the “full ratchet” and standard anti-dilution provisions contained in the Convertible Note. This resulted in an embedded derivatives liability as a result of these anti-dilution provision. This conversion price represents a discount of approximately 45% from the lowest trading price the Company common stock during the five trading days prior to October 7, 2014, the date the Company issued the Convertible Note to Magna. |
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The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivative as of the inception date of Magna Note and to fair value as of each subsequent reporting date which at December 31, 2014 was $252,211. At the inception of the Magna Note, the Company determined the aggregate fair value of $472,702 of the embedded derivative. At the dates of debt reductions, as described above, the Company reclassified the fair value of the related derivative liability of $128,624 to additional paid in capital. |
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For the year ended December 31, 2014, the Company amortized $57,319 of debt discount to current period operations as interest expense. |
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The remaining principle balance as of December 31, 2014 was $205,000. |
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For 2013, the fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 154.80% to 164.29%, (3) weighted average risk-free interest rate of 0.07% to 0.17%, (4) expected lives of 0.50 to .77 years, and (5) estimated fair value of the Company’s common stock from $0.01 to $0.0373 per share. The initial fair value of the embedded debt derivative of $387,983 was allocated as a debt discount up to the proceeds of the note ($290,500) with the remainder ($97,483) charged to current period operations as interest expense. |
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For 2014, the fair value of the embedded derivatives were determined using the Binomial Option Pricing Model based on the following assumptions at December 31, 2014: (1) dividend yield of 0%, (2) expected volatility of 146.33% to 171.91%, (3) weighted average risk-free interest rate of 0.10% to 0.25%, (4) expected lives of 0.76 to 1.00 years, and (5) estimated fair value of the Company’s common stock from $0.0105 to $0.0486 per share. The initial fair value of the embedded debt derivative of $1,443,708 was allocated as a debt discount up to the proceeds of the notes ($768,000) with the remainder ($675,708) charged to current period operations as interest expense. For the years ended December 31, 2014 and 2013, the Company amortized an aggregate of $575,629 and $368,682 of debt discounts to current period operations as interest expense, respectively. |