NOTE 7 – NOTES PAYABLE

Notes payable consists of the following at March 31, 2015 and December 31, 2014:


	March 31, 2015		December 31, 2014
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015	$	114,000	$	114,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due)		50,000		50,000
Notes payable; interest at 8% per annum, principal and accrued interest due at December 1, 2014 (past due)		650,000		650,000
Notes payable; interest at 5% and 8% per annum, principal and accrued interest due at April 2015		123,000		123,000
Notes payable; interest at 5% per annum, principal and accrued interest due at June 10, 2015		25,000		—
Notes payable; interest at 8% per annum, principal and accrued interest due at June 25, 2015		111,102		—
Less: Debt discount		—		(10,447	)

		1,073,102		926,553
Less: Current portion		1,073,102		926,553

	$	—	$	—

The notes payable balance as of March 31, 2015 includes a Series A note payable in the amount of $50,000 with interest of 8% per annum. This note matured in October 2011 and is past due. Accrued interest associated with this note was $21,667 as of March 31, 2015. The notes are in default.

On June 10, 2014, the Company issued a note payable for $250,000, which included fully vested warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.10 per share, expiring in five years. The warrants were valued at $39,650 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 248.2%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $34,222 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $34,222 was accreted through interest expense. The note and accrued interest at 8% per annum as was originally due on December 11, 2014, but the Company received approval to extend the maturity until December 31, 2014. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $17,741 and the note payable balance was $250,000. As of March 31, 2015, the fair value of the warrant liability was $19,950 and the note payable balance was $250,000. The note is in default.

On August 5, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $29,725 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $22,914 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $22,914 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $11,178 and the note payable balance was $100,000. As of March 31, 2015, the fair value of the warrant liability was $12,322 and the note payable balance was $100,000. The notes are in default.

On August 12, 2014, the Company issued a notes payable for $50,000, which included fully vested warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $26,817 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $17,455 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $17,455 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $5,585 and the note payable balance was $50,000. As of March 31, 2015, the fair value of the warrant liability was $5,583 and the note payable balance was $50,000. The note is in default.

On August 14, 2014, the Company issued a note payable for $100,000, which included fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $47,676 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $32,274 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $32,274 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $11,226 and the note payable balance was $100,000. As of March 31, 2015, the fair value of the warrant liability was $11,169 and the note payable balance was $100,000. The note is in default.

On September 8, 2014, the Company issued notes payable for $150,000, which included fully vested warrants to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years. The warrants were valued at $62,544 using Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 233.8%, risk free interest rate of 1.67% and expected life of 5 years. The relative fair value of the warrants was $44,140 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes. For the year ended December 31, 2014, $44,140 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on December 1, 2014. The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $17,385 and the note payable balance was $150,000. As of March 31, 2015, the fair value of the warrant liability was $16,767 and the notes payable balance was $150,000. The notes are in default.

On December 5, 2014, the Company issued a note payable for $23,000 to a stockholder, which bears interest at 5.0% and is due on April 5, 2015. The note is in default.

On December 31, 2014, the Company issued a note payable for $100,000, which include fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share expiring in five years. The warrants were valued at $11,812 using the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 229.0%, risk free interest rate of 1.68% and expected life of 5 years. The relative fair value of the warrants was $10,563 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition, and is being accreted over the term of the note payable for financial statement purposes. For the three months ended March 31, 2015, $10,447 was accreted through interest expense. The note and accrued interest at 8% per annum were due in full on April 1, 2015. This note is currently in default. The warrants are subject to anti-dilution adjustments and are therefore classified as a liability in accordance with FASB ASC 815. The warrant liability is revalued at each reporting period with the change in fair value recorded through earnings. As of December 31, 2014, the fair value of the warrant liability was $11,812 and the note payable balance was $89,553, net of a discount of $10,447. As of March 31, 2015, the fair value of the warrant liability was $11,325 and the note payable balance was $100,000. This note is in default.

On February 10, 2015, the Company issued a note payable for $25,000, bearing interest at 5.0% to an accredited investor and director of the Company. The note is due on June 10, 2015.

On March 27, 2015, the Company issued a note payable for $111,102, bearing interest at 8.0% to an accredited investor. The note and accrued interest is due on June 25, 2015. The principal amount of the note and accrued interest is convertible into the next equity financing of the Company. The conversion price under the conversion option will be equal to the price paid by third-party investors in the financing. On March 20, 2014, VerifyMe waived its contractual rights as it relates to this transaction.