NOTE 5 – NOTES PAYABLE AND DEBENTURES

On July 2, 2014, we closed a financing by which one accredited investor purchased two Original Issue Discount Senior Secured Convertible Debentures due March 31, 2015 and a Common Stock Purchase Warrant to purchase a total of 2,905,000 shares at $0.35 per share, exercisable for a period of five years.  The first Debenture, in the principal amount of $215,250 was issued in exchange for the Company’s Secured Promissory Note in the principal amount of $205,000 and the second Debenture, in the principal amount of $220,500, was sold for the sum of $210,000.  The company evaluated the first Debenture under the guidance found is ASC 470 and determined that the addition of the conversion option was substantive and as a result the company accounted for the transaction as an extinguishment of debt.  The company recorded the pro-rata fair value of warrants issued as a loss on the extinguishment of debt in the amount of $361,155.

The debentures contained an Original issue discount of $20,750, additionally the conversion option on the debentures had a fair value of $357,721 and the 2,905,000 debenture warrants had a fair value of $731,118.  The company recorded a discount on the notes $407,456.  The company is amortizing the discount through the maturity date of the note, as of March 31, 2015 the company recorded $407,456 as amortization of debt discount.

In September 2012, the Company borrowed $30,000 from an individual.  In June 2013, the individual converted $25,000 of this note into 31,250 shares.  The remaining $5,000 note payable is payable on demand and does not have an interest rate.

In June 2013, the Company borrowed $200,000 from Alpha Capital Anstalt.  The $205,000 note was issued at a discount of $5,000, bears no additional interest rate and originally matured on September 14, 2013.  The note has been extended to mature on June 30, 2014.  The Company amortized the discount to the maturity of the note in September 2013.  In connection with the borrowing, the Company issued 50,000 shares with a fair value of $40,000 which was recorded as a discount on the note and also amortized through the maturity date.  In July 2013, the note was extended with issuance of an additional 100,000 shares with a fair value of $80,000.  Additionally, in January 2014, the note was extended to June 30, 2014 with the issuance of an additional 100,000 shares with a fair value of $80,000.  The company evaluated the modifications under ASC 470-50 and determined that the transaction resulted in a substantial modification and accounted for the transaction as an extinguishment.  The fair value of $160,000 was recorded as a loss on extinguishment of debt

In January 2015, the Company entered into a finance agreement for the purchase of Directors’ and Officers’ insurance.  The Company borrowed $17,669 with an interest rate of 5.29% and three quarterly payments of $6,020 each. The balance due at March 31, 2015 was $11,779.