Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2016
(Unaudited)
1. BASIS OF PRESENTATION AND GOING CONCERN
Basis of Presentation
The accompanying unaudited condensed financial statements of Carbon Sciences, Inc. (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2015.
In January 2015, we formed Transphene, Inc. ("Transphene") to hold 50% ownership in the technology developed through a research agreement (Note 9). Through September 30, 2016, the Company has not licensed any intellectual property from UCSB and therefore has not assigned any intellectual property to Transphene. There have been no financial transactions in Transphene and no impact on our condensed consolidated financial statements. All future inter-company transactions will be eliminated in consolidation.
Going Concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying condensed consolidated financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate any revenue, and has negative cash flows from operations, which raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital.
Since its inception through September 30, 2016, the Company has obtained funds primarily from the issuance of common stock and debt. Management believes this funding will continue, and is continually seeking new investors. Management believes the existing shareholders and lenders and prospective new investors will provide the additional cash needed to meet the Company's obligations as they become due, and will allow the development of its core of business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are disclosed in Note 2 to the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company's interim financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Income (Loss) per Share Calculations
Basic net income or loss per common share (Basic EPS) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (Diluted EPS) is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period, and shares issuable upon exercise of convertible notes payable.
Since we had no dilutive effect of stock options and warrants for the three months and nine months ended September 30, 2016 and 2015, our basic weighted average number of common shares outstanding is the same as our diluted weighted average number of common shares outstanding. The Company has excluded 1,410,000 common shares for exercisable options, 46,000 common shares for exercisable common stock purchase warrants, approximately 114,041,000 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares upon exercise of convertible Series B preferred stock for the three months and nine months ended September 30, 2016. The Company has excluded 1,410,000 common shares for exercisable options, 46,000 common shares for exercisable common stock purchase warrants and approximately 347,453,000 common shares issuable upon exercise of convertible notes payable for the three months and nine months ended September 30, 2015.
Fair Value of Financial Instruments
Disclosures about fair value of financial instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2016 and December 31, 2015, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.
We adopted ASC Topic 820 (originally issued as SFAS 157, "Fair Value Measurements") as of January 1, 2008 for financial instruments measured at fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
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·
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Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
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·
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Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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·
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Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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We measure certain financial instruments at fair value on a recurring basis. Liabilities measured at fair value on a recurring basis are as follows at September 30, 2016 and December 31, 2015:
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Total
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Level 1
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Level 2
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Level 3
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September 30, 2016:
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|
|
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|
|
|
|
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Derivative liabilities
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|
$
|
11,546,206
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|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,546,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total liabilities measured at fair value
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|
$
|
11,546,206
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|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,546,206
|
|
|
|
|
|
|
|
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December 31, 2015:
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|
|
|
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Derivative liabilities
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|
$
|
13,184,369
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|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,184,369
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total liabilities measured at fair value
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|
$
|
13,184,369
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|
|
$
|
-
|
|
|
$
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-
|
|
|
$
|
13,184,369
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|
|
|
|
|
|
|
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|
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During the nine months ended September 30, 2016, the Company had the following activity in its derivative liabilities:
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Convertible Notes
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Series B
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Payable
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Preferred Stock
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Total
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Derivative liability at December 31, 2015
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|
$
|
13,184,369
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|
|
$
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-
|
|
|
$
|
13,184,369
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|
|
Addition to liability for new debt/shares issued
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537,000
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|
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3,908,211
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4,445,211
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Elimination of liability on conversion to common shares
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(33,756
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)
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|
-
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|
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|
(33,756
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)
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|
Elimination of liability on conversion to preferred shares
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|
|
(9,750,930
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)
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-
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|
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|
(9,750,930
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)
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Contribution of liability to capital on settlement of
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related party debt
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(106,858
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)
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-
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|
|
|
(106,858
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)
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|
Change in fair value
|
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|
3,141,451
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|
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|
666,719
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|
|
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3,808,170
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|
|
|
|
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|
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|
|
|
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Derivative liability at September 30, 2016
|
|
$
|
6,971,276
|
|
|
$
|
4,574,930
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|
|
$
|
11,546,206
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Derivative Liabilities
We have identified the conversion features of our convertible notes payable and our Series B preferred stock as derivatives. We estimate the fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model and estimate the fair value of the derivatives associated with our Series B preferred stock using a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.
Recently Issued Accounting Pronouncements
Management reviewed new accounting pronouncements issued during the nine months ended September 30, 2016 and through the date of filing this report, and believes no pronouncements are applicable to or would have a material impact on the consolidated financial statements of the Company.
Reclassifications
Certain amounts in the condensed consolidated financial statements for the three months and nine months ended September 30, 2015 have been reclassified to conform to the presentation for the three months and nine months ended September 30, 2016.
3. CAPITAL STOCK
At September 30, 2016, the Company's authorized stock consisted of 2,000,000,000 shares of common stock, with a par value of $0.001 per share. The Company is also authorized to issue 20,000,000 shares of preferred stock, with a par value of $0.001 per share. The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares.
Series A Preferred Stock
On February 12, 2016, the Board of Directors of the Company authorized the issuance of 1,000 shares of Series A Preferred Stock at par value of $0.001 per share to the Company's President and director, William E. Beifuss, Jr., for services rendered.
On February 12, 2016, the Company filed a Certificate of Designation for its Series A Preferred Stock the "Series A Certificate") with the Secretary of State of Nevada designating 1,000 shares of its authorized preferred stock as Series A Preferred Stock. The shares of Series A Preferred Stock have a par value of $0.001 per share. The Series A Preferred Shares do not have a dividend rate or liquidation preference and are not convertible into shares of common stock.
For so long as any shares of the Series A Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right, on or after February 12, 2016, to vote in an amount equal to 51% of the total vote (representing a super majority voting power) with respect to any proposal relating to (a) increasing the authorized share capital of the Company, and (b) effecting any reverse stock split of the Company's issued and outstanding shares of capital stock. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of Series A Preferred Stock. For example, if there are 10,000 shares of the Company's common stock issued and outstanding at the time of such shareholder vote, the holders of the Series A Preferred Stock, voting separately as a class, will have the right to vote an aggregate of 10,408 shares, out of a total number of 20,408 shares voting.
Additionally, the Company is prohibited from adopting any amendments to the Company's Bylaws, Articles of Incorporation, as amended, making any changes to the Series A Certificate, or effecting any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock. However, the Company may, by any means authorized by law and without any vote of the holders of shares of Series A Preferred Stock, make technical, corrective, administrative or similar changes to the Series A Certificate that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of Series A Preferred Stock.
The shares of the Series A Preferred Stock were automatically redeemed by the Company at their par value on a date 90 days after the effective date of the Series A Certificate.
Series B Preferred Stock
Effective March 3, 2016, the Board of Directors of the Company authorized the issuance of 16,155 shares of Series B Preferred Stock having a face value of $1,615,500 to holders of convertible promissory notes in the aggregate principal amount of $1,615,362 payable by the Company (the "Prior Notes"), in exchange for the redemption and cancellation of the Prior Notes, including all outstanding principal of $1,615,362 and unpaid interest, which has been accruing at 10% per annum.
At the date of conversion, the Prior Notes and accrued interest payable consisted of the following:
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Accrued
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Effective Date
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Principal
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Interest
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December 12, 2012
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$
|
198,912
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|
|
$
|
71,929
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February 22, 2013
|
|
|
34,450
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|
|
|
9,607
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May 29, 2013
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|
|
97,000
|
|
|
|
27,461
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|
October 7, 2013
|
|
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58,000
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|
|
|
13,609
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|
April 18, 2014
|
|
|
500,000
|
|
|
|
82,677
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|
|
October 1, 2014
|
|
|
500,000
|
|
|
|
50,749
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|
|
July 13, 2015
|
|
|
227,000
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|
|
|
8,498
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|
|
|
|
|
|
|
|
|
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Total
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|
$
|
1,615,362
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|
|
$
|
264,530
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|
On March 2, 2016, the Company filed a Certificate of Designation for its Series B Preferred Stock (the "Series B Certificate") with the Secretary of State of Nevada designating 30,000 shares of its authorized preferred stock as Series B Preferred Stock. The shares of Series B Preferred Stock have a par value of $0.001 per share.
The total face value of this entire series is three million dollars ($3,000,000). Each share of Series B Preferred Stock has a stated face value of One Hundred Dollars ($100) ("Share Value"), and is convertible into shares of fully paid and non-assessable shares of common stock ("Common Stock") of the Company.
The holders of outstanding shares of the Series B Preferred Stock (the "Holders") are entitled to receive dividends pari passu with the holders of Common Stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Series B Preferred Stock has a preference. Such dividends will be paid equally to all outstanding shares of Series B Preferred Stock and Common Stock, on an as-if-converted basis with respect to the Series B Preferred Stock. The Holders may elect to use the most favorable conversion price for the purpose of determining the as-if-converted number of shares.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holder of each outstanding share of the Series B Preferred Stock shall be entitled to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to one hundred dollars ($100) for each such share of the Series B Preferred Stock (as adjusted for any combinations, consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, before any payment is made or any assets distributed to the holders of the Common Stock. After such payment, the remaining assets of the Company will be distributed to the holders of Common Stock.
If the assets to be distributed to the Holders of the Series B Preferred Stock are insufficient to permit the receipt by such Holders of the full preferential amounts, then all of such assets will be distributed among such Holders ratably in accordance with the number of such shares then held by each such Holder.
The sale of all or substantially all of the Company's assets, any consolidation or merger of the Company with or into any other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company, is deemed to be a liquidation, dissolution or winding up.
The Series B Preferred Stock is convertible into Common Stock.
The Holder has the right, at any time, at its election, to convert all or part of the Share Value into shares of Common Stock. The conversion price is the lesser of (1) Fifty Percent (50%) of the lowest trade price of Common Stock recorded on any trade day after December 12, 2012 or (2) the lowest effective price per share granted to any person or entity, including the Holder but excluding officers and directors of the Company, to acquire Common Stock, or adjusted, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents (the "Conversion Price").
The conversion formula is as follows: The number of shares receivable upon conversion equals the Share Value divided by the Conversion Price. A conversion notice (the "Conversion Notice") may be delivered to Company by any method of Holder's choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions will be cashless and not require further payment from the Holder. If no objection is delivered from the Company to the Holder, with respect to any variable or calculation reflected in the Conversion Notice, within 24 hours of delivery of the Conversion Notice, the Company will thereafter be deemed to have irrevocably confirmed and ratified such notice of conversion and waived any objection. The Company will deliver the shares of Common Stock from any conversion to the Holder (in any name directed by the Holder) within three (3) business days of Conversion Notice delivery. If the Company is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, then upon request of the Holder and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"), or are effectively registered under the Securities Act, the Company will cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Holder through the DTC Direct Registration System ("DRS"). If the Company is not participating in the DTC FAST program, then the Company agrees in good faith to apply and cause the approval for participation in the DTC FAST program.
The Conversion Price is subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events. No fractional shares of the Common Stock shall be issuable upon the conversion of shares of the Series B Preferred Stock and the Company shall pay the cash equivalent of any fractional share upon such conversion.
If the Company fails to deliver shares in accordance with the required time frame, then for each conversion, a penalty of $1,500 per day will be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made. Such penalty may be converted into Common Stock at the Conversion Price or payable in cash, at the sole option of the Holder (under the Holder's and the Company's expectations that any penalty amounts shall tack back to the original date of the issuance of Series B Preferred Stock, consistent with applicable securities laws).
In no event will the Holder be entitled to convert any Series B Preferred Stock, such that upon conversion the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Series B Preferred Stock or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to these limitations), and (2) the number of shares of Common Stock issuable upon the conversion of Series B Preferred Stock, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. The limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).
Except as required by law, the Holders of Series B Preferred Stock are not entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting). Each Holder of outstanding shares of Series B Preferred Stock will be entitled, on the same basis as holders of Common Stock, to receive notice of such action or meeting.
So long as any shares of the Series B Preferred Stock remain outstanding, the Company will not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting together as one class: (a) alter or change the rights, preferences or privileges of the shares of the Series B Preferred Stock so as to affect materially and adversely such shares; or (b) create any new class of shares having preference over the Series B Preferred Stock.
The Holder has the right, at its sole discretion, to elect a fixed conversion price for the Series B Preferred Stock. The Fixed Conversion Price may not be lower than the Conversion Price. The Company will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series B Certificate, and will at all times carry out all the provisions of the Series B Certificate.
Common Stock
On April 20, 2016, the Company amended its articles of incorporation to reduce the number of authorized shares of common stock from 1,000,000,000 to 100,000,000 and to affect a one-for-ten reverse stock split of its authorized, issued and outstanding shares of common stock. The Company has given retroactive affect for the reverse stock split in all periods presented in the accompanying condensed consolidated financial statements.
On April 29, 2016, our Board of Directors and the holder of a majority of the total issued and outstanding voting stock of the Company authorized and approved an amendment to the Company's articles of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 2,000,000,000.
During the nine months ended September 30, 2016, the Company issued a total of 3,028,018 shares of common stock at fair value in conversion of $10,450 of convertible promissory notes and accrued interest payable of $3,176. In connection with the debt conversion, the Company increased common stock by $3,028 and additional paid-in capital by $83,359, reduced derivative liabilities by $33,756 and recognized a loss of $39,005 on conversion of the notes. The Company also increased the number of common shares by 816 shares pursuant to the reverse stock split, increasing common stock by $1 and decreasing additional paid-in capital by $1.
4. STOCK OPTIONS AND WARRANTS
Stock Options
As of September 30, 2016, the Board of Directors of the Company had granted non-qualified stock options exercisable for a total of 1,410,000 shares of common stock to its employees, officers, and consultants. Stock-based compensation cost is measured at the grant date based on the value of the award granted using the Black-Scholes option pricing model, and recognized over the period in which the award vests, which is generally 25 months. Stock-based compensation expense included in general and administrative expense was $0 and $8,400 for the three months ended September 30, 2016 and 2015, respectively, and $0 and $25,200 for the nine months ended September 30, 2016 and 2015, respectively. As of September 30, 2016, we had no unrecognized stock-based compensation expense.
A summary of the Company's stock option awards as of September 30, 2016, and changes during the nine months then ended is as follows:
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Shares
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|
|
Weighted
Average
Exercise Price
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|
|
Weighted Average
Remaining
Contract Term
(Years)
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|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2015
|
|
|
1,410,000
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable
at September 30, 2016
|
|
|
1,410,000
|
|
|
$
|
0.19
|
|
|
|
3.97
|
|
|
$
|
8,120
|
|
The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.0658 as of September 30, 2016, which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.
Warrants
As of September 30, 2016 and December 31, 2015, the Company had 46,000 common stock purchase warrants outstanding, with an exercise price of $5.00 per share and expiring on various dates in 2017 and 2018.
5. CONVERTIBLE NOTES PAYABLE
Convertible Promissory Note - $299,212
Effective October 24, 2013, the remaining principal balance of the certain notes payable totaling $291,443 and accrued interest of $7,769 were combined in a new 10% convertible promissory note in the aggregate amount of $299,212. The new note was convertible into shares of our common stock at a conversion price equal to (a) the lesser of $0.06 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person through the issuance of securities after the effective date. After conversions to our common stock during 2013 and 2014, and the three months ended March 31, 2016, the note had a principal balance of $198,912. This principal balance and related accrued interest payable of $71,929 were converted into shares of Series B preferred stock on March 3, 2016.
Convertible Promissory Notes - Services of $244,452
On December 31, 2012, we entered into convertible promissory notes with three individuals in exchange for services rendered in the aggregate amount of $244,452, including $185,852 with the Chairman of our Board of Directors and our former Chief Executive Officer ("Chairman"). We entered into securities purchase agreements for the sale of 5% convertible promissory notes in the principal amount of $244,452, which are convertible into shares of our common stock at a conversion price equal to the lesser of $2.00 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. One of the notes with a principal balance of $25,980 at September 30, 2015 matured on December 31, 2014 and is currently in default. The other two notes mature on December 31, 2016. We recorded a debt discount of $237,742 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception.
On July 27, 2016, we entered into a Settlement and Release Agreement with the Chairman for full extinguishment of the above described convertible promissory note with a principal balance of $185,852, plus accrued interest. We agreed to pay the Chairman $100 in cash and arranged for him to enter into an option agreement with our principal lender and a principal holder of our Series B preferred stock ("Lender") to acquire 225 shares of our Series B preferred stock from the Lender upon the occurrence of certain events defined in the agreement. Due to the related party nature of this transaction, the extinguishments of the note principal of $185,752, accrued interest payable of $33,199 and associated derivative liability of $106,858 were recorded to additional paid-in capital as a contribution to capital totaling $325,809.
Convertible Promissory Note - $100,000
During 2013, we received total proceeds of $40,000 pursuant to a securities purchase agreement for the sale of 10% convertible promissory notes in the aggregate principal amount of $100,000. The notes are convertible into shares of our common stock at a price equal to a variable conversion price of the lesser of $0.90 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The notes were to mature one year from their effective date. The maturity dates were extended to June 30, 2016. We recorded a debt discount of $40,000 related to the beneficial conversion feature of the notes, which has been fully amortized to interest expense. During the three months ended March 31, 2016, $5,550 principal and $1,660 accrued interest payable were converted into shares of common stock and the remaining principal of $34,450 and accrued interest payable of $9,607 were converted into shares of Series B preferred stock on March 3, 2016.
Convertible Promissory Note – Accounts Payable of $29,500
On March 14, 2013, we entered into a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $1.50 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matured two years from its effective date, or March 14, 2015, and is currently in default.
Convertible Promissory Note – $97,000
On May 29, 2013, we exchanged $97,000 in demand promissory notes for a 10% convertible promissory note in the aggregate principal amount of $97,000. The note was convertible into shares of our common stock at a price equal to a conversion price of the lesser of $0.28 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The maturity date of the note was extended to June 30, 2016. We recorded a debt discount of $97,000 related to the beneficial conversion feature of the note, which has been fully amortized to interest expense. The principal balance of $97,000 and accrued interest payable of $27,461 were converted into shares of Series B preferred stock on March 3, 2016.
Convertible Promissory Note – Services of $25,000
On June 4, 2013, we entered into a 5% convertible promissory note with a former member of our Board of Directors in exchange for services rendered in the amount of $25,000. The note is convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.35 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We have entered into an agreement to repay this note with 12 equal monthly payments of principal and interest of $2,352. The note had a principal balance of $16,667 and accrued interest payable of $2,125 at September 30, 2016.
Convertible Promissory Note – $5,000 Exchanged Note
On September 6, 2013, we exchanged a $5,000 promissory note for a 10% convertible promissory note in the aggregate principal amount of $5,000. The note is convertible into shares of our common stock at a price equal to a conversion price of the lesser of $0.042 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The note matured on June 30, 2016 and is currently in default. We recorded a debt discount of $2,536, which has been fully amortized to interest expense, along with a derivative liability at inception.
Convertible Promissory Note – $250,000
On October 8, 2012, we entered into to a 10% convertible promissory note in the aggregate principal amount of $250,000. The note is convertible into shares of common stock of the Company at a price equal to the lesser of $0.06 or 50% of the lowest trade price subsequent to the effective date of the note and prior to the conversion. The maturity date of this note has been extended to June 30, 2016.
The lender previously advanced a total of $11,000 in August and September 2013 that was transferred to this promissory note. We recorded a debt discount of $11,000, which has been fully amortized to interest expense, along with a derivative liability upon transfer.
On October 21, 2013, we received additional proceeds of $22,000 on this promissory note. We recorded a debt discount of $22,000, which has been fully amortized to interest expense, along with a derivative liability at inception.
On November 22, 2013, we received additional proceeds of $25,000 on this promissory note agreement. We recorded a debt discount of $25,000, which has been fully amortized to interest expense, along with a derivative liability at inception.
The total principal balance of $58,000 and total accrued interest payable of $13,609 were converted into shares of Series B preferred stock on March 3, 2016.
April 2014 Convertible Promissory Note – $500,000
On April 18, 2014, we entered into a 10% convertible promissory note with an aggregate principal amount of $500,000 (the "April 2014 $500,000 CPN"). The advance amounts received were at the lender's discretion. The notes were convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; or 50% of the lowest trade price subsequent to the effective date of the note and prior to the conversion; or the lowest effective price per share granted to any person or entity to acquire common stock subsequent to the effective date of the note. The note matured, with respect to each advance, eighteen months from the effective date of each advance.
On April 18, 2014, we received proceeds of $60,000 pursuant to the April 2014 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount was fully amortized to interest expense.
On May 20, 2014, we received proceeds of $45,000 pursuant to the April 2014 $500,000 SPA. We recorded a debt discount of $45,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount was fully amortized to interest expense.
On June 30, 2014, we received proceeds of $200,000 pursuant to the April 2014 $500,000 CPN. We recorded a debt discount of $200,000 related to the conversion feature of the note, along with a derivative liability at inception. The debt discount has been fully amortized to interest expense.
On July 18, 2014, we received proceeds of $25,000 pursuant to the April 2014 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $820.
On August 6, 2014, we received proceeds of $65,000 pursuant to the April 2014 $500,000 CPN. We recorded a debt discount of $65,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $4,381.
On August 18, 2014, we received proceeds of $25,000 pursuant to the April 2014 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,231.
On September 9, 2014, we received proceeds of $56,000 pursuant to the April 2014 $500,000 CPN. We recorded a debt discount of $56,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $7,064.
On October 8, 2014, we received proceeds of $24,000 pursuant to the April 2014 $500,000 CPN. We recorded a debt discount of $24,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,759.
The total principal balance of $500,000 and total accrued interest payable of $82,677 were converted into shares of Series B preferred stock on March 3, 2016.
October 2014 Convertible Promissory Note – $500,000
On October 1, 2014, we entered into a 10% convertible promissory note with an aggregate principal amount of $500,000 (the "October 2014 $500,000 CPN"). The advance amounts received were at the lender's discretion. The note was convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; or 50% of the lowest trade price subsequent to the effective date of the note and prior to the conversion; or the lowest effective price per share granted to any person or entity to acquire common stock subsequent to the effective date of the note. The note was to mature, with respect to each advance, eighteen months from the effective date of each advance.
On October 1, 2014, we received proceeds of $65,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $65,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $7,473.
On November 7, 2014, we received proceeds of $30,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $3,455.
On December 9, 2014, we received proceeds of $25,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,874.
On January 14, 2015, we received proceeds of $92,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $92,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $10,596.
On February 10, 2015, we received proceeds of $30,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $3,455.
On March 16, 2015, we received proceeds of $30,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $30,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $3,436.
On April 17, 2015, we received proceeds of $45,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $45,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $5,164.
On May 5, 2015, we received proceeds of $65,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $65,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $7,445.
On May 11, 2015, we received proceeds of $40,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $40,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $4,582.
On June 22, 2015, we received proceeds of $35,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $35,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $4,016.
On June 23, 2015, we received proceeds of $20,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $20,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,295.
On July 9, 2015, we received proceeds of $23,000 pursuant to the October 2014 $500,000 CPN. We recorded a debt discount of $23,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,635.
The total principal balance of $500,000 and total accrued interest payable of $50,748 were converted into shares of Series B preferred stock on March 3, 2016.
July 2015 Convertible Promissory Note – $500,000
On July 13, 2015, we entered into a 10% convertible promissory note with an aggregate principal amount of $500,000 (the "July 2015 $500,000 CPN"). The advance amounts received were at the lender's discretion. The note was convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; or 50% of the lowest trade price subsequent to the effective date of the note and prior to the conversion; or the lowest effective price per share granted to any person or entity to acquire common stock subsequent to the effective date of the note. The note was to mature, with respect to each advance, eighteen months from the effective date of each advance.
On July 13, 2015, we received proceeds of $12,000 pursuant to the July 2015 $500,000 CPN. We recorded a debt discount of $12,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $1,375.
On August 7, 2015, we received proceeds of $65,000 pursuant to the July 2015 $500,000 CPN. We recorded a debt discount of $65,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $7,445.
On September 10, 2015, we received proceeds of $25,000 pursuant to the July 2015 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,879.
On October 13, 2015, we received proceeds of $25,000 pursuant to the July 2015 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,879.
On November 13, 2015, we received proceeds of $25,000 pursuant to the July 2015 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,879.
On December 9, 2015, we received proceeds of $25,000 pursuant to the July 2015 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,879.
On January 14, 2016, we received proceeds of $25,000 pursuant to the July 2015 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,239.
On February 9, 2016, we received proceeds of $25,000 pursuant to the July 2015 $500,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $1,051.
The total principal balance of $227,000 and total accrued interest payable of $8,498 were converted into shares of Series B preferred stock on March 3, 2016.
March 2016 Convertible Promissory Note – $1,000,000
On March 4, 2016, we entered into a convertible promissory note in the aggregate principal amount of $1,000,000 (the "March 2016 $1,000,000 CPN"). The lender may advance the Company consideration in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note matures, with respect to each advance, one year from the effective date of each advance.
On March 4, 2016, we received proceeds of $25,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $14,384.
On March 14, 2016, we received proceeds of $27,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $27,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $14,794.
On March 17, 2016, we received proceeds of $33,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $14,803.
On April 11, 2016, we received proceeds of $90,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $90,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $42,411.
On May 19, 2016, we received proceeds of $60,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $22,027.
On June 22, 2016, we received proceeds of $50,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $13,699.
On July 6, 2016, we received proceeds of $87,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $87,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $20,499.
On August 5, 2016, we received proceeds of $60,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $9,205.
On September 13, 2016, we received proceeds of $55,000 pursuant to the March 4, 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2016, amortization of debt discount was recorded to interest expense in the amount of $2,562.
The total gain on settlement of debt related to the conversion of notes payable into shares of our common stock was $0 and $542 for the three months ended September 30, 2016 and 2015, respectively. The total loss on settlement of debt related to the conversion of notes payable into shares of our common stock was $39,005 for the nine months ended September 30, 2016 and the total gain on settlement of debt related to the conversion of notes payable into shares of our common stock was $5,660 for the nine months ended September 30, 2015.
6. DERIVATIVE LIABILITIES
The fair value of the Company's derivative liabilities is estimated at the issuance date and is revalued at each subsequent reporting date.
For purpose of estimating the fair value of the derivative liability associated with our convertible notes payable, we used the Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative liability at September 30, 2016 are as follows:
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|
|
|
|
Stock price on the valuation date
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$0.0658
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|
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Conversion price for the debt
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$0.0045 - $0.062
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|
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Dividend yield
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0.00
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%
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Years to maturity
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.25 – .95
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|
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Risk free rate
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.29% - .59
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%
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Expected volatility
|
60.93% - 203.34
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%
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The value of the derivative liability associated with our convertible notes payable at September 30, 2016 and December 31, 2015 was estimated at $6,971,276 and $13,184,369, respectively. These inputs are subject to significant changes and market fluctuations from period to period; therefore, the estimated fair value of the derivative liability will fluctuate from period to period and the fluctuation may be material.
For purpose of estimating the fair value of the derivative liability associated with our Series B preferred stock, we used a multinomial lattice model based on projections of various potential future outcomes. The significant assumptions used in the valuation of the derivative liability at September 30, 2016 are as follows:
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Conversion to stock
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Monthly
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|
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Stock price on the valuation date
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$0.0658
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|
|
Conversion price
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$0.0045
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|
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Years to maturity
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15.0
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|
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Expected volatility
|
227.2
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%
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The value of the derivative liability associated with our Series B convertible stock at September 30, 2016 was estimated at $4,574,930. These inputs are subject to significant changes from period to period and to management's judgment; therefore, the estimated fair value of the derivative liability will fluctuate from period to period, and the fluctuation may be material.
7. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
During the nine months ended September 30, 2016 and 2015, the Company paid no amounts for income taxes.
During the nine months ended September 30, 2016 and 2015, the Company paid $1,063 and $0 for interest.
During the nine months ended September 30, 2016, the Company had the following non-cash investing and financing activities:
The Company issued a total of 3,028,018 shares of common stock in conversion of $10,450 in convertible notes payable, plus $3,176 of accrued interest payable, increasing common stock by $3,028, increasing additional paid-in capital by $83,359, decreasing derivative liabilities by $33,756 and recording a loss on settlement of debt of $39,005.
The Company increased debt discount and derivative liabilities by $537,000 for the issuance of new convertible debt.
The Company issued a total of 16,155 shares of Series B preferred stock in conversion of $1,615,362 in convertible notes payable, plus $264,530 of accrued interest payable, increasing Series B preferred stock by $16, increasing additional paid-in capital by $11,630,806 and decreasing derivative liabilities by $9,750,930.
The Company increased derivative liabilities and decreased additional paid-in capital by $3,908,211 for derivative liabilities associated with the issuance of Series B preferred stock.
The Company increased common stock and decreased additional paid-in capital by $1 for the par value of additional shares of common stock issued in the reverse stock split.
The Company decreased convertible notes payable by $185,752, accrued interest payable by $33,199 and derivative liabilities by $106,858 and increased additional paid-in capital by $325,809 for settlement of related party debt recorded as a contribution to capital.
During the nine months ended September 30, 2015, the Company had the following non-cash investing and financing activities:
The Company issued a total of 80,311,720 shares of common stock in conversion of $29,200 in convertible notes payable, plus $6,940 of accrued interest payable, increasing common stock by $80,313, increasing additional paid-in capital by $642,074, decreasing derivative liabilities by $691,907 and recording a gain on settlement of debt of $5,660.
The Company increased debt discount and derivative liabilities by $482,000 for the issuance of new convertible debt.
8. RELATED PARTY TRANSACTIONS
See Note 3 for discussion of the issuance of 1,000 shares of Series A Preferred Stock to the Company's President and director, William E. Beifuss, Jr., for services rendered. The shares were subsequently automatically redeemed on the date 90 days after the effective date of the Series A Certificate.
See Note 5 for discussion of convertible notes payable to related parties, including multiple lenders who are also shareholders of the Company.
On December 12, 2012, we entered into a convertible note with the Chairman in exchange for services valued at $185,852. On July 27, 2016, we entered into a Settlement and Release Agreement with the Chairman for full extinguishment of the convertible promissory note with a principal balance of $185,852, plus accrued interest of $33.199 and associated derivative liability of $106,858, which was recorded as a contribution of capital totaling $325,809. We agreed to pay the Chairman $100 in cash and arranged for him to enter into an option agreement with our principal lender and a principal holder of our Series B preferred stock ("Lender") to acquire 225 shares of our Series B preferred stock from the Lender upon the occurrence of certain events defined in the agreement.
On June 4, 2013, we entered into a convertible note with a member of our Board of Directors in exchange for services valued at $25,000. As of September 30, 2016 and December 31, 2015, the principal balance of this related party note was $16,667 and $25,000, respectively, with accrued interest payable of $2,125 and $3,219 as of September 30, 2016 and December 31, 2015, respectively. We have entered into an agreement to repay the note with 12 equal monthly payments of principal and interest of $2,352.
9. RESEARCH AGREEMENTS AND FORMATION OF SUBSIDIARY
On June 18, 2014, we entered into a Sponsored Research Agreement ("SRA #1") with UCSB, pursuant to which UCSB performed research work for the mutual benefit of UCSB and the Company. The purpose of SRA #1 included the development of a low-cost and scalable method to produce large-area graphene for transparent electrode applications. The term of SRA #1 commenced on July 1, 2014 and expired on June 30, 2015. The total cost to the Company was $387,730, which has been fully paid. The Company amortized the SRA #1 payments over the life of the contract.
On December 15, 2015, we entered into another Sponsored Research Agreement ("SRA #2") with UCSB, pursuant to which UCSB will perform research work for the mutual benefit of UCSB and the Company. The purpose of SRA #2 includes the development of a graphene based optical modulator for the high-speed transmission of digital data in fiber optic networks. The term of SRA #2, as amended on May 19, 2016, commenced on January 1, 2016 and expired on September 30, 2016. The total cost to the Company is $65,497.
On January 5, 2015, the Company formed Transphene, Inc., a Nevada corporation ("Transphene"), of which the Company owns 50% of the total issued and outstanding capital stock. The remaining 50% is owned by Dr. Kaustav Banerjee ("Banerjee"), a director and Chief Technical Officer of Transphene. Transphene is formed to commercialize any technology that the Company licenses out of SRA #1. In consideration for its interest in Transphene, the Company assigned to Transphene the intellectual property rights acquired by the Company from SRA #1. The Company and Banerjee also entered into a Shareholders' Agreement pursuant to which the Company and Banerjee agreed to (i) vote their shares to elect Mr. William E. Beifuss, Jr., President and Chief Executive Officer of the Company, and Banerjee as the directors of Transphene and (ii) not sell or transfer shares until the selling shareholder first offers its shares to the other shareholder. Through September 30, 2016, the Company has not licensed any intellectual property from UCSB and therefore has not assigned any intellectual property to Transphene. There have been no financial transactions in Transphene and no impact on our consolidated financial statements. At this time, the Company does not see an opportunity to commercialize the research findings from SRA #1. The Company does not intend to continue Transphene, and expects to terminate, wind-up and dissolve the subsidiary in 2016. Any future inter-company transactions will be eliminated in consolidation.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:
We received advances under the March 4, 2016 $1,000,000 CPN of $55,000 on October 17, 2016 and $55,000 on November 8, 2016.
