|3 Months Ended|
Mar. 31, 2017
|Notes to Financial Statements|
|Note 8. NOTES PAYABLE||
As of March 31, 2017 and December 31, 2016, notes payable consisted of the following:
As of March 31, 2017 and December 31, 2016, total debt was $2,211,378 and $1,918,676, respectively, which included unamortized debt discount of $3,443,622 and $4,295,648, respectively. The senior secured promissory notes are secured by shares of common stock. There was accrued interest payable of $124,827 and $96,633 as of March 31, 2017 and December 31, 2016, respectively.
Securities Purchase Agreement Dated February 22, 2017 and 12% Senior Convertible Promissory Note Due August 22, 2018
On February 22, 2017, the Company entered into a Securities Purchase Agreement (the Purchase Agreement) with an accredited investor (the Purchaser) pursuant to which the Company sold to the Purchaser a 12% Senior Convertible Promissory Note due August 22, 2018 (the Note) in the principal amount of $3,000,000 for a purchase price of $3,000,000 (the Offering). There were no fees or expenses deducted from the net proceeds received by the Company in the Offering. The Note and the shares of the Companys common stock, par value $0.001 per share (the Common Stock) issuable upon conversion of the Note (the Conversion Shares) are collectively referred to herein as the Securities.
All principal and interest due and owing under the Note is convertible into shares of Common Stock at any time at the election of the holder at a conversion price per share equal to the lower of (i) $0.2495 or (ii) 85% of the lowest daily volume weighted average price of the Common Stock in the fifteen (15) trading days prior to the conversion date (the Conversion Price), which Conversion Price is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. The Company accounts for debt discount according to ASC 470-20 Debt With Conversion And Other Options. Debt discount in the amount of $2,243,000 associated with the Convertible Note was recorded and will be amortized over the term of the note. Upon certain events of default, the conversion price of the Note will automatically become 70% of the average of the three (3) lowest volume weighted average prices of the Common Stock in the twenty (20) consecutive trading days prior to the conversion date for so long as such event of default remains in effect. All interest payments under the Note are payable, at the Companys option, in cash or shares of Common Stock.
In addition, at any time that (i) the daily volume weighted average price of the Common Stock for the prior ten (10) consecutive trading days is $0.70 or more and (ii) the average daily trading value of the Common Stock is greater than $2,500,000 for the prior ten (10) consecutive trading days, then the Company may demand, upon one (1) days notice, that the holder convert the Note at the Conversion Price.
The Company may prepay in cash any portion of the outstanding principal amount of the Note and any accrued and unpaid interest by, upon ten (10) days written notice to the holder, paying an amount equal to (i) 110% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of the Note; (ii) 115% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of the Note; or (iii) 125% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of the Note.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef