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Debt
12 Months Ended
Dec. 31, 2015
Debt [Abstract]  
DEBT

NOTE 5 - DEBT

 

Short-term debt

 

As of December 31, 2015, the Company had a term loan with a third party financial institution for $124,000 with an outstanding balance of $57,844. The note is subject to annual interest of 4.5%. The note is collateralized by all of the assets of NAC and Conic Systems Inc. (“Conic”), an entity owned by the Company’s CEO, and a guarantee issued by the Company’s CEO. $26,856 was repaid on this note during the year ended December 31, 2015. The outstanding balance under this note was $84,700 as of December 31, 2014.

 

On May 1, 2015, the Company issued a revolving $30,000 note for inventory financing. The note is subject to a 15% annual interest rate and has a term of 120 days. Aggregate borrowings and repayments under this revolving note during the year ended December 31, 2015 were $23,664 and $23,664, respectively. 

 

Debt with related parties

As of December 31, 2015 and 2014, the Company has an outstanding non-interest bearing loans from its CEO and majority shareholder, amounting to $14,500 and $20,500 respectively. The Company also obtained a loan from a family member of the CEO amounting to $200,000 which is subject to annual interest of 3% and $140,000 and $200,000 is outstanding as of December 31, 2015 and 2014 respectively. Both loans have no stated maturity dates.

 

On January 20, 2014, the Company obtained a non-interest bearing loan from the CEO amounting to $115,000. The loan matured on May 30, 2014 and is currently past due. In May, 2015 the CEO assigned the note to Conic . The outstanding balance under this note was $115,000 as of December 31, 2015 and 2014.

 

In January and April 2014, the Company obtained non-interest bearing loans from a director each amounting to $10,000. The loans have a term of 6 months and the outstanding balance on these loans as of December 31, 2015  and 2014 amounted to $20,000 and are currently past due.

 

In April 2014, the Company issued a note to a director amounting to $25,000. The note is subject to annual interest of 12.5% and a minimum interest of $1,562. The note shall be paid at the earlier of the Company’s receipt of $50,000 in debt or equity funding or 365 days. The outstanding balance on this note as of December 31, 2015  and 2014 amounted to $25,000 and is currently past due.

 

In August 2015, Conic loaned NAC Global Technologies, Inc. $25,000 at zero interest with a maturity date of December 31, 2015. As of December 31, 2015, the full principal amount of the note remains outstanding and is currently past due.

 

Convertible debt

The Company issued a 12% convertible note in 2014 for a total amount of $375,000 to a third party which had a term of 1 year and a conversion price of $0.30. On September 23, 2015 the note was amended and restated to a total amount of $438,123 which included accrued interest with a due date of March, 23, 2016. Beginning on October 15, 2015 and on each of the following 6 successive months thereafter, the Company is obligated payments of $5,000 per month. All overdue accrued and unpaid interest is subject to a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law. The Company may prepay the note for the sum of the then outstanding principal amount of the convertible note and guaranteed interest multiplied by 125%. The note includes a reset provision in the conversion price in the event the Company subsequently sells shares at a price lower than $0.30. As a result, the Company determined that the conversion feature of the note qualified for derivative accounting. The fair value of the embedded conversion feature as determined using the Black-Scholes option pricing model amounted to $341,987 which was recognized as a debt discount and amortized over the term of the note. The Company also paid fees to the lender amounting to $10,000 which was also recognized as a debt discount at the note’s 2014 inception and was amortized over the term of the note. Principal payments of $15,000 were made in 2015 and as of December 31, 2015, the note has an outstanding balance of $423,123. In April 2016, the note was further amended to extend the maturity date to December 31, 2018 with monthly payments of $5,000 to start in July 2017.

 

During 2014, the Company issued two 12% notes for a total amount of $100,000 to third parties, which have a one year term and are convertible to common stock beginning four months from the issuance date of the notes or upon an event of default. The conversion price on the notes is equivalent to 70% of the lowest daily VWAP (volume weighted average price) during the 10 day trading period immediately prior to conversion. The notes contain an embedded derivative but are not recognized until the notes become convertible. Based on the above terms, the Company determined that the conversion feature of the notes do not qualify for derivative accounting as of December 31, 2014. The Company is obligated to pay the principal amount and accrued interest on the date of its planned public offering. In connection with the notes, the Company issued 25,000 common shares to the note holders with a relative fair value of $24,421 which was recognized as a discount to the notes. The Company also issued 2,500 common shares with a fair value of $3,250 and paid $12,000 fees both of which were recognized as deferred financing fees. The debt discount and deferred financing fees were amortized over the term of the note. On January 13, 2015, these notes were amended to increase the interest rate from 12% to 15% and 25,000 additional shares of common stock were issued in connection with the modification. The modification was deemed substantial and was accounted for as a debt extinguishment under ASC 470. The fair value of the additional shares issued, including the unamortized debt discount and deferred financing fees, at the date of modification totaling to $34,878 was recognized as a loss on debt extinguishment. These two notes also became convertible in 2015. Due to the variable conversion rate on the notes, the embedded conversion feature qualified for derivative accounting. The fair value of the embedded conversion option of $88,419 was recognized as a debt discount and amortized over the term of the note. These notes were converted to equity in 2015 and as December 31, 2015 have zero outstanding balances. See also Note 6.

 

During 2014, the Company issued two 8% convertible notes to a third party for a total amount of $93,000 with a term of one year and are convertible to common stock beginning six months from the issuance of the date of the notes or upon event of default. The conversion price is equivalent to 70% of the averages of the lowest five (5) closing bid prices during the 10 day trading period immediately prior to conversion. In the event of default, the Company is obligated to pay 150% of the sum of the then due outstanding principal plus any unpaid and outstanding interest. The notes contain an embedded derivative but are not recognized until the notes become convertible. Based on the above terms, the Company determined the conversion feature of the note do not qualify for derivative accounting as of December 31, 2014. The Company paid debt discount of $23,000 that was amortized over the term of the notes. These notes became convertible in 2015. Due to the variable conversion rate on the notes, the embedded conversion feature qualified for derivative accounting. The fair value of the embedded conversion option of $54,517 was recognized as a debt discount and amortized over the term of the note. During the year ended December 31, 2015, $20,000 of these notes were converted to equity (see Note 6) while the balance of $73,000 was repaid. As December 31, 2015 these notes have zero outstanding balances.

 

On December 22, 2014 the Company issued a 15% note in the amount of $50,000 to a third party, which has a one year term and is convertible to common stock beginning four months from the issuance date of the note or upon an event of default. The conversion price is equivalent to 70% of the lowest daily VWAP (volume weighted average price) during the 10 day trading period immediately prior to conversion. The note contains an embedded derivative but is not recognized until the note becomes convertible. Based on the above terms, the Company determined that the conversion feature of the note does not qualify for derivative accounting as of December 31, 2014. The Company is obligated to pay the principal amount and accrued interest on the date of its planned public offering. In connection with the note, the Company issued 25,000 common shares to the note holder with a relative fair value of $10,159 which was recognized as a discount to the note. The Company also issued 2,500 common shares with a fair value of $1,275 and paid $6,000 fees both of which were recognized as deferred financing fees. The debt discount and deferred financing fees were amortized over the term of the note. This note became convertible in 2015. Due to the variable conversion rate on the note, the embedded conversion feature qualified for derivative accounting. The fair value of the embedded conversion option of $34,858 was recognized as a debt discount and amortized over the term of the note. The note was converted to equity in 2015 and as December 31, 2015 has an outstanding balance of zero. See also Note 6.

 

On January 8, 2015, the Company issued a 3% original issue discount convertible note to an accredited investor in the amount of $109,000 with a term of one (1) year and a conversion price equal to the lower of $0.50 or 80% of the share price that will be used by the Company in its next share issuance. In connection with the issuance of the note, the Company also issued warrants to purchase 21,800 shares of common stock at an exercise price of $0.63 per share and a term of two (2) years. The note is subject to annual interest of 12% and the Company was required to prepay six (6) months of interest amounting to $6,000 which is included in the principal amount. Due to the variable conversion rate on the note, the embedded conversion feature and the warrants issued with the note qualified for derivative accounting. The fair value of the embedded conversion option and the warrants including the original issue discount of $3,000 totaled $95,322 was recognized as a discount to the note. The Company also paid deferring financing fees of $9,000. The debt discount and deferred financing fees were amortized over the term of the note. In April 2016, the note was amended to extend the maturity date to December 8, 2018 with monthly interest payments of $1,000 to start in July 2016. 

 

In connection with the above notes, the Company also incurred legal costs in 2014 of $44,310 which were deferred and amortized over the term of the notes. Amortization expense during the years ended December 31, 2015 and 2014 for both the debt discount and deferred financing fees amounted to $427,154 and $263,166, respectively. As of December 31, 2015 and 2014, the unamortized discount amounted to $$2,090 and $164,421, respectively.