Short-Term Borrowings to Unrelated Parties

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

SHORT-TERM BORROWINGS TO UNRELATED PARTIES

NOTE 7 – SHORT-TERM BORROWINGS TO UNRELATED PARTIES

On July 17, 2015, the Company completed a sale and leaseback transaction with Fordham Capital. In the transaction, the Company sold all of its production equipment, furniture and fixtures for $514,707. From the proceeds of the sale, the Company repaid outstanding borrowings of $200,000 due to Fordham Capital plus accrued interest of $3,112, franchise taxes of $96,542 and a security deposit of $15,800 related to the equipment lease.

On September 29, 2015, the Company issued a 14% nonconvertible senior unsecured note to an accredited investor in the principal amount of $250,000. The note initially matured in six months (March 26, 2016) and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. On December 23, 2015, the Company executed an amendment whereby the maturity date was extended to July 1, 2016. On June 29, 2016, the Company executed an amendment whereby the maturity date was extended to October 1, 2016. On September 30, 2016, the Company executed an amendment whereby the maturity date was extended to April 3, 2017.

On December 23, 2015, the Company issued a 14% nonconvertible senior unsecured note to Jonathan Kahn in the principal amount of $500,000. The note matures in twelve months (December 23, 2016) and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. During the three months ended June 30, 2016 this note was reclassified from a short-term borrowing to unrelated parties to a short-term non-convertible note to related parties. On May 17, 2016, Mr. Kahn became our Chief Executive Officer, interim Chief Financial Officer and a member of our Board of Directors

On March 2, 2016, the Company issued a 14% senior unsecured note to Jonathan Kahn in the principal amount of $100,000. The Company recognized $3,791 and amortized $438 of discount as of September 30, 2016. The note matures in one year (March 2, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 400,000 shares of the Company’s common stock, at an exercise price of $0.64 per share to Mr. Kahn. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights. During the three months ended June 30, 2016 this note was reclassified from a short-term borrowing to unrelated parties to a short-term non-convertible note to related parties.

On March 11, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $100,000. The Company recognized $3,189 and amortized $355 of discount as of September 30, 2016. The note matures in one year (March 11, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 400,000 shares of the Company’s common stock, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On April 7, 2016, the Company issued 14% senior unsecured notes to two accredited investors in the total principal amount of $100,000. The Company recognized $3,924 and amortized $378 of discount as of September 30, 2016. The notes mature in one year (April 7, 2017) and bear interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued warrants to acquire a total of 400,000 shares of the Company’s common stock at an exercise price of $0.64 per share to the two accredited investors. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On April 8, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $500,000. The Company recognized $15,342 and amortized $1,470 of discount as of September 30, 2016. The note matures in one year (April 8, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 2,000,000 shares of the Common Stock, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On July 14, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $500,000. The Company recognized $6,383 and amortized $273 of discount as of September 30, 2016. The note matures in one year (July 14, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 2,000,000 shares of the Company’s common stock, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On July 21, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $300,000. The Company recognized $2,117 and amortized $82 of discount as of September 30, 2016. The note matures in one year (July 21, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 600,000 shares of the Company’s common stock, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

Below is a summary of the principal and interest activity for the period ended September 30, 2016:

	Principal			Interest
Balance at December 31, 2015	$	750,000		$	10,442
Principal advances and accrued interest		1,600,000			184,019
Reclassification of notes to related	$	(600,000	)	$	(60,679	)
Principal payments and interest		-			-
Balance at September 30, 2016	$	1,750,000		$	133,782
Less debt discount		(27,904	)
Balance at September 30, 2016	$	1,722,096		$	133,782