NOTES PAYABLE

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

NOTE 6 - NOTES PAYABLE

As of December 31, 2015 and 2014, notes payable are as follows:

	2015		2014
Bank loans	$	-	$	50,000
Note payable, dated June 1, 2015		45,765		-
Note payable, dated July 2, 2015		12,500		-
Note payable, dated August 28, 2015		50,000		-
Note payable, dated December 17, 2015		50,000		-
Investor notes payable, 12% per annum		377,867		377,867
Total		536,132		427,867
Less current portion		536,132		427,867
Long term portion	$	-0-	$	-0-

Bank loans

On October 7, 2011, a bank loan (unsecured) was issued in the amount of $237,500 at a 6.25% interest rate, with monthly payments of $6,250 matured on December 1, 2014, and guaranteed by a director. During the years ended December 31, 2015 and 2014, the Company repaid $50,000, and $75,000, respectively. The outstanding balance on the bank loan as of December 31, 2015 and 2014 is $-0- and $50,000, respectively.

Notes payable

On June 1, 2015, the Company issued an unsecured note payable for $50,000 due October 1, 2016 with interest at 12% per annum, paid monthly beginning June 2015 and principal payments beginning October 2015. The outstanding balance as of December 31, 2015 is $45,765.

On July 2, 2015, the Company issued an unsecured note payable for $12,500 due March 15, 2016 with interest at 10% per annum, paid monthly beginning October 2015 and principal payments beginning February 2016.

On August 28, 2015, the Company issued an unsecured note payable for $50,000 due February 28, 2016 with interest at 12% per annum, due at maturity.

On December 17, 2015, the Company issued an unsecured note payable for $50,000 due December 17, 2016 with interest at 12% per annum, paid monthly beginning April 2015 and principal payments beginning October 2016.

Investor notes payable

Investor Note 1

On December 21, 2007, an unaffiliated investor loaned the Company $125,000 on an unsecured 18-month note with a maturity date of June 21, 2009. The note has a provision requiring repayment once the Company has raised an aggregate of $500,000 following issuance of this note. As a result, this note is currently in default as it has not been repaid and the Company reached the $500,000 threshold in September, 2008. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with the note, the Company granted to the investor a warrant to purchase 37,500 shares of common stock at an exercise price of $1.07 and an expiration date of December 21, 2012, which has passed. This note is guaranteed by a stockholder.

On April 10, 2008, this investor loaned the Company an additional $198,000 on an amendment of the prior unsecured note with a maturity date of June 21, 2009 for payment of the entire balance of the first note plus the amendment ($323,000 total). In February 2010, the Company converted $65,133 principal and $74,867 accrued interest on the note to common stock. In August 2010, the Company repaid $80,000 principal through partial sale of the note. As a result, the remaining balance of the amended note is $177,867. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity.

In conjunction with the note, the Company also issued a warrant to purchase 99,000 shares of common stock at an exercise price of $2.45 and an expiration date of April 10, 2013. This warrant has a cashless exercise feature. The Company also issued 50,000 shares of common stock valued at $122,130 in order to induce the investor to forbear on the note. This note is guaranteed by a stockholder of the Company. The note was amended and maintains the provision requiring repayment of the note upon raising gross proceeds of $500,000 subsequent the issuance of the note. As of December 31, 2015 and 2014, this note is in default.

Investor Note 2

On December 30, 2007, an unaffiliated investor loaned the Company $200,000 on an unsecured 18-month note with a maturity date of June 30, 2009. The note carries interest at a rate of 12% per annum, with interest accruing and payable at maturity. In conjunction with this note, the Company also issued a warrant to purchase 100,000 shares of common stock at an exercise price of $1.00 and an expiration date of December 30, 2012, which has passed. This note is guaranteed by a stockholder. In 2015, the note holder entered into an agreement whereby their obligation was extended till October 22, 2016. The terms of the agreement included a payment of accrued interest of $4,000.