Notes Payable | Note 5 – Notes Payable A summary of the notes payable activity during the nine months ended September 30, 2018 is presented below: Related Party Convertible Other Debt Notes Notes Notes Discount Total Outstanding, December 31, 2017 $ 845,000 $ 2,029,870 [1] $ 1,124,465 $ (337,485 ) $ 3,661,850 Issuances - 3,800,728 [2] 128,000 - 3,928,728 Exchanges for equity (95,000 ) (1,600,676 ) (542,760 ) 55,673 (2,182,763 ) Conversions to equity - (105,000 ) - - (105,000 ) Repayments (30,000 ) (403,280 ) - 24,973 (408,307 ) Extinguishment of notes payable - (407,295 )[2] - - (407,295 ) Recognition of debt discount - - - (2,456,892 ) (2,456,892 ) Accretion of interest expense - 7,782 177,283 242,843 427,908 Amortization of debt discount - - - 1,884,116 1,884,116 Outstanding, September 30, 2018 $ 720,000 $ 3,322,129 [1][3] $ 886,988 $ (586,772 ) $ 4,342,345 [1] As of September 30, 2018 and December 31, 2017, a portion of convertible notes with an aggregate principal balance of $1,202,693 and $1,777,788, respectively, was currently convertible into shares of common stock at the election of the holder any time until the balance has been paid in full. As of September 30, 2018 and December 31, 2017, a portion of convertible notes with an aggregate principal balance of $0 and $252,082, respectively, was convertible into shares of common stock at the election of the Company near maturity. In the event the Company exercised that conversion right, the respective holder had the right to accelerate the conversion of up to $0 and $196,666 of principal into shares of common stock at September 30, 2018 and December 31, 2017, respectively, at the same conversion price. [2] During the nine months ended September 30, 2018, convertible notes in the aggregate principal amount of $407,295 were issued concurrently with the extinguishment of certain convertible notes payable in the same aggregate principal amount. See below within Note 5 – Notes Payable – Conversions, Exchanges and Other for additional details. [3] As of September 30, 2018, outstanding convertible notes in the aggregate principal amount of $80,000 were past maturity. See Note 9 – Subsequent Events for details regarding the exchange of such aggregate principal amount. As of September 30, 2018, a portion of convertible notes with an aggregate principal balance of $2,119,436, which are not currently convertible, will become convertible subsequent to September 30, 2018 into shares of the Company's common stock at the election of the respective holder. Related Party Notes As of September 30, 2018 and December 31, 2017, related party notes consisted of notes payable issued to certain directors of the Company, family members of an officer of the Company, and the Tuxis Trust (the “Trust”). A director and principal shareholder of the Company serves as a trustee of Trust, which was established for the benefit of his immediate family. During the nine months ended September 30, 2018, the Company partially repaid certain related party notes in the aggregate principal amount of $30,000. During the nine months ended September 30, 2018, the Company and certain related parties agreed to exchange certain notes with an aggregate principal balance of $95,000 for an aggregate of 76,000 shares of the Company’s common stock at $1.25 per share. The common stock had an aggregate exchange date value of $114,000 and, as a result, the Company recorded a loss on extinguishment of notes payable of $19,000. During the nine months ended September 30, 2018, the Company and certain related parties agreed to extend the maturity dates of notes payable with an aggregate principal balance of $140,000 from maturity dates ranging between August 2016 to February 2018 to new maturity dates ranging from July 2018 to December 2018. Convertible Notes Issuances During the nine months ended September 30, 2018, the Company issued certain lenders and a consultant convertible notes payable in the aggregate principal amount of $3,393,433 for aggregate cash proceeds of $2,952,213. The difference of $441,220 was recorded as follows: (i) $309,285 was recorded as a debt discount and will be amortized over the terms of the respective notes and (ii) $131,935 was immediately recognized as consulting expense in the condensed consolidated financial statements. The convertible notes bear interest at rates ranging between 6% to 12% per annum payable at maturity with original maturity dates ranging between June 2018 through September 2019. See Note 6 – Commitments and Contingencies for additional details regarding convertible notes issued in connection with consulting services. As of September 30, 2018, convertible notes in the aggregate principal amount of $407,295 were issued concurrently with the extinguishment of certain convertible notes payable in the same aggregate principal amount. See below within Note 5 – Notes Payable – Conversions, Exchanges and Other for additional details. The above described convertible notes in the aggregate principal amount of $3,800,728 are convertible as follows: (i) $1,351,293 of aggregate principal and the respective interest is convertible into shares of the Company’s common stock at the election of the respective holder at any time immediately on or after the issue dates until the respective balances have been paid in full, (ii) $2,262,500 of aggregate principal and the respective interest is convertible into shares of the Company’s common stock at the election of the respective holder after the 180th day following the respective issue date until the balance has been paid in full, (iii) $55,000 of principal and respective interest is convertible into shares of the Company’s stock at the election of the Company during the five days prior to maturity and ending on the day immediately prior to maturity; however, should the Company elect to convert any portion of the $55,000 of note principal and respective accrued interest, the holder would have the right to accelerate the conversion of the remaining outstanding principal and accrued interest of the note at the same conversion price, and (iv) $170,000 ($131,935 earned as of September 30, 2018) of aggregate principal and the respective interest is convertible from time to time following the respective issue date at the holder’s election. See Note 6 – Commitments and Contingencies for additional details regarding convertible notes issued in connection with consulting services. During the nine months ended September 30, 2018, convertible note issuances were comprised of (i) $675,000 of convertible notes that were convertible at a fixed price of $2.00 per share for the first six months following the respective issue date, thereafter, at a conversion price equal to the greater of (a) 58% of the fair value of the Company’s stock or (b) $0.10 per share, until the respective note has been paid in full, (ii) $978,228 of convertible notes that were convertible at the greater of (a) a range between 50% to 65% of the fair value of the Company’s stock or (b) $0.75 or $1.00 per share, depending on the note, (iii) $350,000 of convertible notes that were convertible at a fixed conversion price of $2.15 per share and (iv) $1,797,500 of convertible notes that were convertible at 58% of the fair value of the Company’s stock. In connection with the issuance of certain convertible notes, the Company issued the lenders an aggregate of 28,333 shares of the Company’s common stock and the relative fair value of $42,827 was recorded as debt discount and is being amortized over the term of the respective notes. See below within Note 5 – Notes Payable – Conversions, Exchanges and Other and Note 8 – Derivative Liabilities for additional details regarding the ECOs of the convertible notes. Of the convertible notes issued during the nine months ended September 30, 2018, convertible notes in the aggregate principal amount of $137,500 have mandatory prepayment terms at the option of the holder (“MPOs”). Convertible notes issued with MPOs permit the respective holder to demand prepayment of the note, in cash, at a premium of 35% of the then outstanding principal balance and accrued interest during the period between 150 days to 179 days following the respective issuance date. Of the convertible notes issued during the nine months ended September 30, 2018, convertible notes in the aggregate principal amount of $2,811,500 have prepayment premiums. In the event that the Company elects to prepay certain notes during the first ninety-day period following the issue date, the respective holder is entitled to receive a prepayment premium of up to 30%, depending on the note, on the then outstanding principal balance including accrued interest. In the event that the Company prepays any of the notes during the second ninety-day period following the issue date, the respective holder is entitled to receive a prepayment premium of up to 40%, depending on the note, on the then outstanding principal balance including accrued interest. In the event that the Company prepays a certain note after the 180 th Of the convertible notes issued during the nine months ended September 30, 2018, convertible notes in the aggregate principal amount of $1,756,500 have most favored nation (“MFN”) provisions, whereby, so long as such respective note is outstanding, upon any issuance by the Company of any security with conversion discounts, conversion lookback periods, floor prices, lookback formulas, and/or prepayment premiums, depending on the note, more favorable to the holder of such security, then at the respective holder’s option, those more favorable terms shall become a part of the transaction documents with the holder. As of September 30, 2018, notes with MFN provisions were convertible using MFN conversion terms equal to conversion prices ranging between 58%-65% of the fair market value of the Company’s stock, as defined. Conversions, Exchanges and Other During the nine months ended September 30, 2018, the Company and certain lenders exchanged certain convertible notes with bifurcated ECOs with an aggregate principal balance of $1,600,676 and aggregate accrued interest of $100,503 for an aggregate of 1,579,032 shares of the Company’s common stock at prices ranging from $0.83 to $2.38 per share. The common stock had an aggregate exchange date value of $3,548,942 and, as a result, the Company recorded a loss on extinguishment of notes payable of $77,132. As a result of the exchanges, an aggregate of $1,826,304 and $55,673 of the related ECOs and debt discounts were extinguished, respectively. See Note 8 – Derivative Liabilities for additional details. During the nine months ended September 30, 2018, the Company elected to convert certain convertible notes with an aggregate principal balance of $105,000 and aggregate accrued interest of $5,637 into an aggregate of 97,424 shares of the Company’s common stock at conversion prices ranging from $0.82 to $2.02 per share. During the nine months ended September 30, 2018, the Company repaid an aggregate principal amount of $403,280 of convertible notes payable, $21,625 of the respective aggregate accrued interest and an aggregate of $81,709 of prepayment premiums. As a result of the repayments, the Company recorded a loss on extinguishment of notes payable of $106,682 and an aggregate of $24,973 of the related debt discounts were extinguished. During the nine months ended September 30, 2018, the Company and certain lenders agreed to multiple extensions of the maturity dates of notes payable with an aggregate principal balance of $681,445 from maturity dates ranging between December 2017 to July 2018 to new maturity dates ranging from April 2018 to September 2018. In consideration of the extensions, the Company issued a lender 4,500 shares of the Company’s common stock. The issuance date fair value of the common stock of $9,000 was recorded as debt discount and is being amortized over the term of the note. See below within this Note 5 – Notes Payable – Conversions, Exchanges and Other and Note – 8 Derivative Liabilities for additional details regarding the ECOs of the convertible notes. As of September 30, 2018, there were $80,000 of convertible notes payable past due. During the nine months ended September 30, 2018, a lender to the Company acquired three convertible promissory notes issued by the Company in the aggregate outstanding amount of $407,295 (inclusive of accrued interest of $7,782) from a different lender to the Company. The Company exchanged the acquired notes for new convertible notes in the aggregate principal amount of $407,295 which accrue interest at a rate of 8% per annum, payable on the maturity date of August 30, 2019. Additionally, the conversion terms of the acquired notes were modified such that the new notes are convertible, at the option of holder, into shares of common stock of the Company at a conversion price equal to the greater of (a) 65% (previously 80%) of fair value of the Company’s common stock or (b) $0.10 per share (previously $1.00 per share). The ECOs of the notes were subject to sequencing and their issuance date fair value of $260,377 was accounted for as a derivative liability (See Note 8 – Derivative Liabilities for additional details). Since the fair value of the new ECO exceeded 10% of the principal amount of the new notes, the note exchanges were accounted for as extinguishments, and accordingly the Company recognized a net loss on extinguishment of $58,942 in connection with the derecognition of the net carrying amount of $608,730 of the extinguished debt ($407,295 of aggregate principal and interest and the derivative liability carrying value of their ECOs of an aggregate of $201,435) and the issuance of the new convertible notes in the aggregate principal amount $407,295 plus the fair value of the new notes’ ECOs of an aggregate of $260,377. During the nine months ended September 30, 2018, the Company determined that certain ECOs of issued or extended convertible notes were derivative liabilities. The aggregate issuance date value of the bifurcated ECOs was $2,199,136, of which $1,938,759 was recorded as a debt discount and is being amortized over the terms of the respective convertible notes and $260,377 was recognized as part of an extinguishment loss as described above. See Note 8 – Derivative Liabilities for additional details. During the nine months ended September 30, 2018 and 2017, the contingently adjustable non-bifurcated, beneficial conversion features associated with certain convertible notes were resolved and such notes became convertible during the period. The Company estimated the intrinsic value of the beneficial conversion features based upon the difference between the fair value of the underlying common stock at the commitment date of the note transaction and the adjusted conversion price embedded in the convertible note. During the nine months ended September 30, 2018 and 2017, the Company recognized $69,394 and $10,596, respectively, related to the beneficial conversion feature as debt discount which was immediately amortized. Other Notes During the nine months ended September 30, 2018, the Company issued a lender three-month notes payable in the aggregate principal amount of $128,000, which bear no interest, for aggregate cash proceeds of $110,000. The $18,000 difference was recorded as debt discount and is being amortized over the terms of the respective notes. In connection with the issuances of the promissory notes, the Company issued the lender an aggregate of 6,500 shares of the Company’s common stock. The issuance date fair value of the common stock of $9,627 was recorded as debt discount and is being amortized over the terms of the respective notes. During the nine months ended September 30, 2018, the Company and certain lenders agreed to exchange certain notes with an aggregate principal balance of $542,760 and aggregate accrued interest of $12,064 for an aggregate of 451,493 shares of the Company’s common stock at prices ranging from $1.00 to $1.50 per share. The common stock had an aggregate exchange date value of $677,239 and, as a result, the Company recorded a loss on extinguishment of notes payable of $122,415. During the nine months ended September 30, 2018, the Company and certain lenders agreed to multiple extensions of the maturity dates of notes payable with an aggregate principal balance of $1,309,747 from maturity dates ranging between December 2017 to October 2018 to new maturity dates ranging from March 2018 to January 2019. In consideration of the extensions, the Company issued certain lenders an aggregate of 35,000 shares of the Company’s common stock. The aggregate issuance date fair value of the common stock of $60,000 was recorded as debt discount and is being amortized over the terms of the respective notes. Additionally, in connection with a certain extension, the Company increased the stated rate at which the note bears interest, from 0% to 8% per annum, effective June 2018. As of September 30, 2018, the only note that was past due was a convertible note and is referenced within Note 5 – Notes Payable – Convertible Notes. |