Debt | Note 3 Debt Debt consists of the following at September 30, 2015 and December 31, 2014: September 30, 2015 December 31, 2014 Line-of-credit with related party $ 55,324 $ 33,807 Notes payable, short term: Note payable, net of unamortized discount of $97,959 and $41,011, of September 30, 2015 and December 31, 2014 $ 902,041 $ 1,008,989 Note payable, net of unamortized discount of $1,698 and $-0-, as of September 30, 2015 and December 31, 2014, respectively 48,302 Note payable, net of unamortized discount of $1,928 and $-0-, as of September 30, 2015 and December 31, 2014, respectively 33,072 Note payable, net of unamortized discount of $-0- and $822, as of September 30, 2015 and December 31, 2014, respectively 24,178 Note payable, net of unamortized discount of $-0- and $27,712, as of September 30, 2015 and December 31, 2014, respectively 72,288 Notes payable, net of unamortized discount of $-0- and $175,248, as of September 30, 2015 and December 31, 2014, respectively 124,752 Note payable, net of unamortized discount of $-0- and $39,452, as of September 30, 2015 and December 31, 2014, respectively 110,548 Total notes payable, short-term $ 983,415 $ 1,340,755 Line-of-Credit with Related Party The Company entered into a line-of-credit facility on September 23, 2013 that provides it with borrowing capacity on a revolving basis up to a maximum of $50,000, which was increased to $75,000 at August 28, 2015 with an initial maturity of November 28, 2013. The entity providing the credit facility is owned by an officer of another corporation for which Infinitys president and chairman of the board serves as president and chairman of the board. The facility is unsecured, bears interest at 8% per annum, and was renewed at its maturity in January 2014, April 2014, February 2015 and May 2015. Its current maturity date is November 28, 2015. In consideration for the origination of the line of credit facility and the various renewals, the Company granted the lender common stock purchase warrants exercisable to purchase an aggregate of 45,000 shares of common stock at an exercise price of $15.00 per share (as amended on January 23, 2014), which warrants were immediately exercisable and expired on various dates from September 23, 2018 to October 23, 2019 (as amended). The parties agreed as a condition to the renewal of the facility in January 2014 that all warrants would be extended to a five-year term and the exercise price reduced to $15.00 per share. The Company estimated the fair value of the warrants at $60,290 as of the original grant date in 2013, which amount was recorded as debt issuance costs and amortized to expense over the term of the line-of-credit. The Company estimated the fair value of the new warrants exercisable to purchase 40,000 shares issued to extend the facility during 2014 and the increased value of the amended warrants to be $603,966, which has been recorded as additional debt issuance costs and amortized to expense over the extended term of the facility. On February 28, 2015, the line-of-credit facility matured and the Company was unable to repay the principal and interest. The Company negotiated an extension to May 28, 2015 and granted the lender common stock purchase warrants exercisable to purchase an aggregate of 10,000 shares of common stock at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on February 28, 2020. The parties agreed as a condition to the renewal of the facility in February 2015 that all previously issued warrants to the lender totaling 890,625 shares would be extended to a five-year term and the exercise price reduced to $5.00 per share. The total value of the 10,000 newly issued warrants totaled $28,507 which is being amortized over the extension period. The increased value of the amended warrants totaled $149,157 which was immediately expensed. On March 26, 2015, the Company negotiated an additional amendment to the line-of-credit facility, which increased the maximum amount from $50,000 to $100,000. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase an aggregate of 10,000 shares of common stock at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on March 26, 2020. The parties agreed as a condition to the amendment of the facility on March 26, 2015 that the line-of-credit will become convertible to common stock at an exchange rate of $5.00 per share. The total value of the 10,000 newly issued warrants totaled $30,288, which is being amortized over the extension period. Total amortization expense related to the line-of-credit was $184,537 for the three months ended March 31, 2015. On May 28, 2015, the Company negotiated an additional amendment to the line-of-credit facility, which decreased the maximum amount from $100,000 to $75,000 and extended its maturity date to August 28, 2015. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase an aggregate of 10,000 shares of common stock at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on May 26, 2020. The parties agreed as a condition to the amendment of the facility on May 26, 2015 that the line-of-credit will be convertible to common stock at an exercise price of $5.00 per share. The total value of the 10,000 newly issued warrants totaled $35,652, which is being amortized over the extension period. On August 26, 2015, the Company negotiated an additional amendment to the line-of-credit facility, which extended its maturity date to November 28, 2015. In consideration, the Company granted the lender common stock purchase warrants exercisable to purchase an aggregate of 10,000 shares of common stock at an exercise price of $5.00 per share, which warrants were immediately exercisable and expire on August 26, 2020. The total value of the 10,000 newly issued warrants totaled $8,452, which is being amortized over the extension period. During the three and nine months ended September 30, 2015, $25,896 and $269,683 of debt issuance costs were amortized (including amounts immediately expensed) to interest expense, respectively and the remaining unamortized balance was $5,419 as of September 30, 2015 which is included in prepaid expenses.. Effective March 31, 2015, the lender exercised its right to convert a portion of the outstanding line-of-credit principal balances totaling $50,000 into 10,000 shares of common stock at a price of $5.00 per share. Note Payable Short-term On December 27, 2013 the Company borrowed $1,050,000 under an unsecured credit facility with a private, third-party lender. The facility is represented by a promissory note (the December 2013 Note) with an original maturity date of March 12, 2014. The Company and the lender agreed to extend the maturity date of the Note to dates in May and December 2014, to April 7, 2015. Effective April 7, 2015 the Company and the lender agreed to further extend the maturity date of the Note from April 7, 2015 to the earlier of (i) April 7, 2016 or (ii) the payment in full of the Investor Note (the New Maturity Date). In connection with the December 2013 Note, the Company granted the lender a Warrant exercisable to purchase 100,000 shares of its common stock at an exercise price of $15.00 per share. In connection with an extension to April 2015, the parties amended the date for exercise of the Warrant to be a period commencing April 7, 2015 and expiring on the third anniversary of such date. The Company issued no additional warrants to the lender in connection with the extension of the Note to the New Maturity Date. If the Company fails to pay the Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the Warrant remain the same. The warrant has been treated as a derivative liability whereby the value of warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates. In connection with an extensions of the December 2013 Note to April 7, 2016, the Company agreed to enter into a definitive revenue sharing agreement with the lender to grant the lender under the revenue sharing agreement an irrevocable right to receive a monthly payment equal to one half of one percent (1/2%) of the gross revenue derived from the share of all hydrocarbons produced at the wellhead from the Nicaraguan Concessions and any other oil and gas concessions that the Company and its affiliates may acquire in the future. This percent increased to one percent (1%) when the Company did not pay the December 2013 Note in full by August 7, 2014. Therefore, the revenue sharing agreement is fixed at one percent (1%). The value of the one percent (1.0%) definitive revenue sharing agreement granted to the lender as consideration for the extension of the maturity date to December 7, 2014 was estimated to be $964,738. Such amount has been reflected as a reduction of oil and gas properties and as a discount on the renewed note payable and amortized ratably over the extended term of the note. In connection with the extension of the maturity date of the December 2013 Note to April 7, 2016, the Company also (i) issued the lender 20,000 shares of restricted common stock; (ii) decreased the exercise price of the warrant to $5.00 per share and extended the term of the warrant to a period commencing on the New Maturity Date and expiring on the third anniversary of such date; and (iii) paid $50,000 toward amounts due under the December 2013 Note. The Company issued no additional warrants to the lender in connection with the extension of the Note to the New Maturity Date. If the Company fails to pay the December 2013 Note on or before its New Maturity Date, the number of shares issuable under the Warrant increases to 1,333,333 and the exercise price drops to $0.75 per share. All other terms of the warrant remain the same. The December 2013 Note may be prepaid without penalty at any time. The Note is subordinated to all existing and future senior indebtedness, as such terms are defined in the Note. The Warrant has been treated as a derivative liability whereby the value of Warrant is estimated at the date of grant and recorded as a derivative liability and as a discount on the note payable. The warrant liability is revalued to fair value at each reporting date with the corresponding income (loss) reflected in the statement of operations as change in derivative liability. The discount is amortized ratably through the original maturity date and each of the extended maturity dates. The Company recognized value of the 20,000 shares of common stock issued ($104,000) and the increased value of the outstanding warrants due to the decrease in their exercise price ($68,716) as an additional discount on the note payable to be amortized ratably over the extended term of the underlying note. The discount recorded as of the December 27, 2013 origination date of the note and as a result of the amendments to the Note terms and extensions of the maturity date has been amortized ratably over the term and extended terms of the note. Discount amortization expense aggregated $47,432 and $427,160 for the three months ended September 30, 2015 and 2014, respectively. Discount amortization expense aggregated $115,769 and $1,513,186 for the nine months ended September 30, 2015 and 2014, respectively, and the remaining unamortized discount was $97,958 and $41,011 as of September 30, 2015 and December 31, 2014, respectively. The warrant derivative liability balance was $23,949 as of September 30, 2015. Other than the Note described above, during the nine months ended September 30, 2015 the Company had short-term notes outstanding with entities or individuals as follows: ● On July 7, 2015 the Company borrowed a total of $50,000 from an individual under a convertible note payable with the conversion rate of $5.60 per share. The term of the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity a warrant for the purchase of 5,000 shares of common stock at $5.60 per share for a period of five years from the date of the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 10,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as derivative liability. The Company recorded the estimated fair value of the warrant totaling $22,314 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. Such discount is amortized ratably over the term of the note to interest expense which totaled $20,616 for the three and nine months ended September 30, 2015. The remaining unamortized discount was $1,698 and $-0- as of September 30, 2015 and December 31, 2014, respectively. ● On July 15, 2015 the Company borrowed a total of $35,000 from an individual under a convertible note payable with the conversion rate of $5.60 per share. The term of the note was for a period of 90 days and bears interest at 8% per annum. In connection with the loan, the Company issued the entity a warrant for the purchase of 3,500 shares of common stock at $5.60 per share for a period of five years from the date of the note. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the number of warrants automatically increases to 7,000 shares and the exercise price remains at $5.60 per share. The ratchet provision in the stock purchase warrant requires that the warrant be accounted for as derivative liability. The Company recorded the estimated fair value of the warrant totaling $11,827 as a discount on note payable and as a derivative liability in the same amount, as of the origination date. Such discount is amortized ratably over the term of the note to interest expense which totaled $9,899 for the three and nine months ended September 30, 2015. The remaining unamortized discount was $1,928 and $-0- as of September 30, 2015 and December 31, 2014, respectively. ● On January 7, 2014 the Company borrowed a total of $25,000 from an individual under a convertible note with a conversion price of $15.00 per share. The term of the note was for one year and it bears interest at 8% per annum. In connection with the loan, the Company issued the lender a warrant exercisable to purchase 2,500 shares of common stock at $15.00 per share for a term of five years from the date of the note. The terms of the note and warrant provide that if the note and interest are not paid in full by its maturity date, the conversion price of the note and exercise price of the warrant automatically reduce to $5.00 per share. The ratchet provision in the note conversion and warrant exercise price require that these be accounted for as derivative liabilities. The Company recorded the estimated fair value of the conversion feature and warrants totaling $37,323 as discounts on note payable and as a derivative liability in the same amount, as of the date of the note. On January 7, 2015, the Company and the holder agreed to extend the maturity date of the note to February 28, 2015 and in consideration the Company granted it an additional 2,500 warrants with an exercise price of $5.00 per share with a January 7, 2020 expiration date. The parties agreed as a condition of the renewal of the facility in January 2015 that all previously issued warrants to the lender totaling 15,000 shares would be extended to a five-year term and the exercise price reduced to $5.00 per share. The value of the newly issued warrants and the increased value of the amended warrants totaled $57,961 which was amortized over the extension terms. Interest expense for the three months ended September 30, 2015 and 2014 includes discount amortization in the amount of $-0- and $6,164, respectively. Interest expense for the nine months ended September 30, 2015 and 2014 includes discount amortization in the amount of $58,783 and $30,336, and as of September 30, 2015 and December 31, 2014, the remaining unamortized discount was $-0- and $822, respectively. On February 28, 2015, the holder exercised its right to convert the full principal balance of $25,000 and accrued interest totaling $2,285 into 5,457 shares of common stock at a price of $5.00 per share. The value of the warrant derivative was increased to the estimated value of $49,887 representing the amended terms of the previously issued warrants as of the date of conversion and transition to equity. The Company paid the holder a fee of $2,729 in connection with the conversion of the note into common stock. ● On March 31, 2014 the Company borrowed a total of $100,000 from an entity under a convertible note with a conversion price of $15.00 per share. The term of the note was for a period of 180 days and it bears interest at 8% per annum. In connection with the loan, the Company issued the lender a warrant exercisable to purchase of 10,000 shares of common stock at $15.00 per share for a term of five years from the date of the note. On September 30, 2014, the parties agreed to extend the maturity date of the note to February 28, 2015, for which the Company granted an additional warrant exercisable to purchase 10,000 shares of common stock at an exercise price of $10.00 per share for a five-year term and reduced the exercise price of the previously issued warrants to $10.00 per share. The terms of the note and warrant provide that if the note and interest are not be paid in full by its maturity date, the conversion price of the note and the exercise price of the warrant automatically reduce to $5.00 per share. The ratchet provision in the note conversion and warrant exercise price required that the conversion feature and warrants be accounted for as derivative liabilities. The Company recorded the estimated fair value of the conversion feature and warrants totaling $143,502 as a discount on note payable and as a derivative liability in the same amount, on the origination date of the note. In addition, the fair value of the new warrants issued and changes to previously issued warrants at the date of the extension was estimated at $70,924, which was also recorded as a discount on the note and a derivative liability. The Company amortized the discount to interest ratably over the term of the note. Interest expense for the three months ended September 30, 2015 and 2014, respectively, includes discount amortization in the amount of $-0- and $50,273, respectively. The Company amortized the discount to interest ratably over the term of the note. Interest expense for the nine months ended September 30, 2015 and 2014, respectively, includes discount amortization in the amount of $27,712 and $143,502, respectively and as of September 30, 2015 and December 31, 2014, the remaining unamortized discount was $-0- and $27,712. On February 28, 2015, the holder exercised its right to convert the full principal balance of $100,000 and accrued interest totaling $9,260 into 21,852 shares of common stock at a price of $5.00 per share. The parties agreed as a condition to the conversion in February 2015 that all previously issued warrants to the lender totaling 20,000 shares would be extended to a five-year term and the exercise price be reduced to $5.00 per share. The value of the warrant derivative was increased to the estimated value of $55,942 representing the amended terms of the previously issued warrants as of the date of conversion and transition to equity. The Company paid the holder a fee of $10,926 in connection with the conversion of the note into common stock. ● On April 4, 2014 and June 7, 2014 it borrowed a total of $250,000 from an entity under two convertible notes payable with a conversion price of $15.00 per share. The original terms of the April 4, 2014 and June 7, 2014 notes were for a period of 180 days and bore interest at 8% per annum. On November 19, 2014 it borrowed an additional $50,000 and renewed the previously notes to mature on February 28, 2015 and bearing interest at 8% per annum. In connection with the loans the Company issued the entity a warrant excisable to purchase 25,000 shares of common stock at $15.00 per share for a term of five years from the date of the notes. On November 19, 2014, the Company granted an additional 35,000 warrants with an exercise price of $10.00 per share and a five-year term and reduced the existing 25,000 warrants exercise price to $10.00 per share. The terms of the notes and warrants provide that if the notes and interest are not be paid in full by their respective maturity dates, the conversion price of the notes and the exercise price of the warrants automatically reduce to $5.00 per share. The ratchet provision contained in the note conversion and warrant exercise price required that these be accounted for as derivative liabilities. The Company recorded the estimated fair value of the conversion feature and warrants totaling $278,585 as a discount on note payable and as a derivative liability in the same amount, as of the date of the respective notes. In addition, the fair value of the new warrants issued and changes to previously issued warrants at the date of the extension was estimated at $436,366 which was also recorded as a discount on the note and a derivative liability. The Company amortized the discount to interest ratably over the term of the note. Interest expense for the three months ended September 30, 2015 and 2014 includes discount amortization in the amount of $-0- and $123,006, respectively. Interest expense for the nine months ended September 30, 2015 and 2014 includes discount amortization in the amount of $175,248 and $228,803, respectively and as of September 30, 2015, and December 31, 2014, the remaining unamortized discount was $-0- and $175,248, respectively. On February 28, 2015, the holder exercised its right to convert the partial principal balance of $200,000 and accrued interest totaling $17,085 into 43,417 shares of common stock at an exchange rate of $5.00 per share. The parties agreed that the remaining $100,000 principal balance will be paid in cash upon the Company closing on a new outside financing transaction which occurred in May 2015. The parties agreed as a condition to the conversion and the repayment of the $100,000 remaining principal balance on the note in February 2015 that all previously issued warrants to the lender totaling 60,000 shares would be extended to a five-year term and the exercise price be reduced to $5.00 per share. The value of the warrant derivative was increased to the estimated value of $152,751 representing the amended terms of the previously issued warrants as of the date of conversion and transition to equity. The Company paid the holder a fee of $21,709 in connection with the conversion of the note into common stock. ● On April 14, 2014 the Company borrowed a total of $100,000 from an entity under a convertible note payable with the conversion rate of $15.00 per share. The term of the note was for a period of 180 days and bore interest at 8% per annum. In connection with the loan, the Company issued the entity a warrant for the purchase of 10,000 shares of common stock at $15.00 per share for a period of five years from the date of the note. On October 2, 2014 it borrowed an additional $50,000 from this entity under a convertible notes payable with the conversion rate of $10.00 per share and extended the term of the original note payable to a maturity date of February 28, 2015. In connection with the issuance of the $50,000 note and the extension of the $100,000 note the Company issued 15,000 new warrants to acquire common stock at $10.00 per share for a term of five years and the reduction in exercise price of the original 10,000 warrants from $15.00 per share to $10.00 per share. The terms of the note and warrant provide that should the note and interest not be paid in full by its maturity date, the conversion price of the note and exercise price of the warrants automatically reduce to $5.00 per share. The ratchet provision in the note conversion and warrant exercise price required that these be accounted for as derivative liabilities. The Company recorded the estimated fair value of the conversion feature and warrants totaling $200,120 as a discount on note payable and as a derivative liability in the same amount, as of the date of the respective notes and the subsequent extension. Interest expense for the three months ended September 30, 2015 and 2014 includes discount amortization in the amount of $-0- and $50,273, respectively. Interest expense for the nine months ended September 30, 2015 and 2014 includes discount amortization in the amount of $39,452 and $97,870, respectively and as of September 30, 2015 and December 31, 2014, the remaining unamortized discount was $-0- and $39,452, respectively. On February 28, 2015, the holder exercised its right to convert the full principal balance of $150,000 into 30,000 shares of common stock at a price of $5.00 per share. The parties agreed as a condition to the conversion in February 2015 that all previously issued warrants to the lender totaling 35,000 shares would be extended to a five-year term and the exercise price be reduced to $5.00 per share. The value of the warrant derivative was increased to the estimated value of $71,268 representing the amended terms of the previously issued warrants. The Company paid the holder a fee of $15,000 in connection with the conversion of the note into common stock. As described above, other notes payable with a total principal balance of $475,000 ($503,630 including accrued interest) were extinguished during the nine months ended September 30, 2015 which caused the associated warrant derivative liability to be transitioned to equity at its fair value on the date of extinguishment. The warrant derivative liabilities transitioned to equity aggregated $329,849 during the nine months ended September 30, 2015 which represented their respective fair value as of the date of the extinguishment of the underlying note payable. |