| DEBT | NOTE
2. DEBT Senior
Convertible Notes The
Company entered into a Securities Purchase Agreement (2013 SPA) dated June 18, 2013 with Cobrador Multi-Strategy
Partners, LP (Investor or Cobrador) pursuant to Cobrador providing an aggregate of $400,000 financing
through senior convertible notes and warrants. During
the six months ended June 30, 2016, the terms of the convertible notes were extended until December 31, 2017. Pursuant to the
extension the maturity of the convertibles notes are for more than one year as of June 30, 2016 and accordingly are reclassified
as noncurrent liabilities. In connection with the extension, the Company extended the expiration dates of Series A Warrants by
one year. The fair value of the Series A Warrants did not materially change due to the extension. During
the six months ended June 30, 2016, the Company issued 450,000 shares of common stock upon Cobrador converting a Senior Convertible
Note in the face amount of $22,500. On
June 30, 2016, the Company entered into an agreement with Cobrador and issued an additional Senior Convertible Note in the face
amount of $108,804 in settlement of accrued interest, additional interest, fees and penalties. The additional interest, fees and
penalties $72,734 and this amount was charged to operations as debt discount amortization during the six months ended
June 30, 2016. The Senior Convertible Note are due on December 31, 2017 and can be convertible into shares of common stock at
a conversion price $.05 per share. The Company determined that the Senior Convertible Note had beneficial conversion feature and
allocated $87,043 as debt discount representing the beneficial conversion. The Company will amortize the debt the discount over
the term of the note. At
June 30, 2016, total outstanding Senior Convertible Notes had a face value of $458,804 are presented net of debt discount of $87,043
resulting in a carrying value of $371,761. At December 31, 2015, the face and carrying values were $372,498 as the then debt discounts
were completely amortized. Pursuant to 2013 SPA, there were an aggregate of 11.2 million Series A Warrants expiring at various
dates between June 2017 and December 2018 and an aggregate of 12 million Series B Warrants expiring at various dates between June
2018 and November 2019. Promissory
Notes Payable During
the six months ended June 30, 2016, the Company issued nine unsecured promissory notes and borrowed an aggregate amount of $474,000.
The promissory notes bear interest at 10% per annum, with a provision for an increase in the interest rate upon an event of default
as defined therein, and were due at various due dates in June 2016. On June 30, 2016 the Company issued new convertible promissory
notes and repaid the promissory notes as further detailed in the Convertible Note Payable section. In
addition, during the six months ended June 30, 2016, the Company borrowed an aggregate of $29,300 pursuant to three unsecured
promissory notes. The notes bear interest at 19% and the borrowings are payable together with interest over a period of six months
from the date of borrowing. The Company repaid an aggregate of $30,549 of borrowings during the six months ended June 30, 2016
and the balance outstanding on these notes at June 30, 2016 was $9,834 ($11,083 at December 31, 2015). In
January and October 2015, the Company entered into two separate 24 month equipment financing agreements with Perkin Industries,
LLC (the Lender) for equipment in the aggregate amount of $137,750 with an annual interest rate of 15%. The Lender
received an aggregate of 110,200 warrants with an exercise price of $0.35 per share and a term of three years in connection with
this financing which was recorded as a debt discount and derivative warrant liability due to the down round provision
in the amount of $1,237. During the three months and six months ended June 30, 2016, the Company amortized debt discount
of $147 and $293, respectively, and the carrying value of this financing is $137,604, net of $146 debt discount, at June 30, 2016.
The fair value of the warrant liability related to Perkin equipment financing obligations was $1,829 as of June 30, 2016 ($2,920
December 31, 2015). Convertible
Note Payable During
the six months ended June 30, 2016, the Company repaid one convertible note payable in Canadian dollars that was acquired in connection
with the U-Vend Canada merger on January 7, 2014 in the face amount of $19,250. The Company has another convertible 18% note in
the principal carrying value of $77,420 as of June 30, 2016. During the three and six months
ended June 30, 2016, the Company recorded an unrealized loss on foreign currency translation related to these notes and the related
accrued interest of $612 and $9,027, respectively. During the three months ended June 30, 2015, the Company recorded an unrealized
loss on foreign currency translation of $820 and, the Company recorded an unrealized gain on foreign currency translation of $15,959
during the six months ended June 30, 2015 related to these notes and the accrued interest. During
the year ended December 31, 2015, the Company issued eleven 9.5% subordinated convertible notes aggregating $441,000 pursuant
to 2015 On
June 30, 2016, the Company issued five Convertible Notes in the aggregate face amount of $761,597 pursuant to 2016 In
connection with these borrowings, the Company granted a total of 2,239,990 warrants with an exercise price of $0.30 per share
with a 5 year expiration. The Company allocated $19,242 to debt discount based on the computed fair value of the convertible notes
and warrants issued, and the debt discount is classified as derivative warrant liability due to the down round provision
in the warrants. As
of June 30, 2016 five convertible notes payable with a face amount of $237,000 ($175,313 at December 31, 2015) are currently due
for repayment. The terms of the notes, amongst other things, provide for payment of additional interest if repayments are not
made on due dates. The Company is in discussion with the note holders for an extension of the repayment date, however, as
of August 8, 2016 no agreement has been reached. Additional interest payable, if any, on the notes as of June 30, 2016 was immaterial. Other
Assets - Deferred Financing Costs Financing
costs associated with the Senior Convertible Notes, certain of the Subordinated Convertible Notes payable and planned financing
are included in deferred financing costs on the condensed consolidated balance sheets at June 30, 2016 and December 31, 2015.
These costs are amortized over the term of the respective notes. The Company incurred approximately $107,000 of financing costs
during the six months ended June 30, 2016, including $7,000 related to maturity extensions of a convertible note paid in shares
of the Companys common stock. Amortization of financing costs for the three and six months ended June 30, 2016 was $6,596
($16,438 in 2015) and $25,993($34,632 in 2015), respectively. As of June 30, 2016, Other Assets balance includes $150,000 ($50,000
at December 31, 2015) financing costs incurred with respect to a planned financing that has not been completed. |
