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Convertible Notes Payable

6 Months Ended

Jun. 30, 2016

2012 Notes and 2013 Notes. In May 2012, in consideration for the extension of certain promissory notes originally due and payable on March 31, 2012 (the “2012 Notes”) to June 30, 2012, the Company assigned to the holders of the 2012 Notes FPMI Warrants to purchase a total of 113,127 shares of FPMI common stock for $0.50 per share (the “$0.50 FPMI Warrants”). In August 2012, in consideration for the extension of the maturity date of the 2012 Notes to November 15, 2012, the Company agreed to assign a total of 155,877 $0.50 FPMI Warrants to the holders of the 2012 Notes. As a result, a total of 260,508 $0.50 FPMI Warrants have been assigned to holders of 2012 Notes.

Between August 2012 and July 2013, the Company issued promissory notes in the aggregate principal amount of $114,000 (the “2013 Notes”). As additional consideration for the 2013 Notes, the Company issued an aggregate total of 200,000 shares of Common Stock, 8,496 $0.50 FPMI Warrants and 64,000 FPMI Warrants exercisable for $1.00 per share.

The 2012 and 2013 Notes accrue interest at the rate of 6% annually prior to maturity, and 12% annually thereafter. All 2012 Notes and 2013 Notes have matured and are currently due and payable on demand. The 2012 Notes and 2013 Notes are convertible at the option of each respective holder into shares of Common Stock at a conversion price equal to $0.10 per share. In addition, the holders may exchange the 2012 Notes and 2013 Notes for Common Stock in the event the Company consummates a qualified financing (the “Qualified Financing”), which is defined in the 2012 Notes and 2013 Notes as a financing resulting in gross proceeds to the Company of at least $500,000. While the Company intends to pay the 2012 Notes and 2013 Notes using proceeds from a Qualified Financing, such Qualified Financing may not occur prior to the date the holders of the 2012 Notes and 2013 Notes demand repayment.

In connection with the issuance of the 2012 Notes and 2013 Notes, the Company has recorded debt discount and expenses of the beneficial conversion feature of $106,261 and $28,998, respectively. The Company will amortize these expenses over the life of the 2012 Notes and 2013 Notes. As of December 31, 2012, the Company recorded interest expense related to the debt discount of $21,905 and $3,777 related to the beneficial conversion feature.

In connection with the issuance of the 2013 Notes, the Company has recorded debt discount and expenses in the amount of $27,753 related to the value of the 64,000 FPMI warrants to the holders of the 2013 Notes. The Company will amortize the costs over the remaining life of these 2013 Notes. As of September 30, 2014, the Company recorded other financing costs of $27,753 related to the debt discount on the 2013 Notes.

On October 29, 2013, the holder of certain outstanding 2012 Notes and 2013 Notes totaling approximately $217,000 in principal and accrued interest agreed to cancel such notes in exchange for a new promissory note with a face amount of $217,000 maturing on March 31, 2014, and 100,000 FPMI Warrants. Separately, our financial advisor agreed to exchange $216,000 of fees accrued from May 15, 2012 to October 15, 2013, otherwise payable in cash on or before December 31, 2013, for a promissory note with a face amount of $250,000 maturing on March 31, 2014, and 100,000 FPMI Warrants. These promissory notes accrued interest at a rate of 8% annually prior to maturity, and, following maturity of both promissory notes on March 31, 2014, now accrue interest at rate of 12% annually.

Bridge Notes. In July 2014, the Company’s Board of Directors approved of a private offering of convertible promissory demand notes (the “Bridge Notes”) to certain accredited investors in the aggregate principal amount of up to $500,000. As additional consideration for the purchase of the Bridge Notes, the Board approved of the issuance of 200,000 shares of the Company’s Common Stock to participating investors for every $100,000 invested.

Each Bridge Note accrues interest at a rate of 10% per annum, payable in either cash or shares of the Company’s Common Stock. The Bridge Notes matured on December 31, 2015, and are currently due and payable on demand. Each Bridge Note is convertible, at the option of the holder thereof, into that number of shares of Common Stock equal to the outstanding principal balance of the Bridge Note, plus accrued but unpaid interest (the “Outstanding Balance”), divided by $0.08 (the “Conversion Shares”). Additionally, in the event the Company completes an equity or equity-linked financing with gross proceeds to the Company of at least $1.5 million (a “Qualified Financing”), the Outstanding Balance of all Bridge Notes will, at the discretion of each respective holder, either (i) convert into securities sold in the Qualified Financing, or (ii) automatically convert into Conversion Shares.

During the year ended December 31, 2014, the Company issued Bridge Notes in the aggregate principal amount of $386,000. As additional consideration for the purchase of the Bridge Notes, the Company issued an aggregate total of 772,000 shares of Common Stock to the purchasers of the Bridge Notes.

In connection with the issuance of the Bridge Notes during the year ended December 31, 2014, the Company recorded debt discount and expenses related to the beneficial conversion feature in the amount of $35,944 and $48,444, respectively. The Company will amortize these amounts over the life of the debt and, accordingly, recorded interest expense related to the debt discount and beneficial conversion feature in the amount of $26,958, and $36,333, respectively. The Company also incurred $46,000 of costs related to issuance of the Bridge Notes, which were amortized over the life of the debt. Total issuance costs recognized during the year ended December 31, 2014 amounted to $34,263.

During the year ended December 31, 2014, the Company authorized the issuance of 2,601,233 shares of Common Stock to the holders of all outstanding notes payable with an aggregate outstanding principal balance of $870,693 in order to satisfy all accrued, but unpaid, interest on the notes issued between 2012 and June 2014. During the period, all of the authorized shares of Common Stock were issued to settle the total outstanding interest payable on the notes, which amounted to $93,924. The Company recognized a loss of $62,150 in connection with the settlement.

On January 2, 2015, the Company issued an additional Bridge Note in the principal amount of $36,500 and issued 73,000 shares of Common Stock to the purchaser of the additional Bridge Note. Additionally, we issued 500,000 shares of Common Stock in January 2015 to certain investors who purchased Bridge Notes during the year ended December 31, 2014, which were previously classified as shares to be issued.

In February 2015, the Company issued an aggregate total of 815,061 shares of Common Stock as payment for accrued interest for the period from July 1, 2014 through December 31, 2014 under certain convertible notes payable.

On June 30, 2015, the Company issued two additional Bridge Notes in the aggregate principal amount of $50,000 and issued an aggregate total of 100,000 shares of Common Stock to the purchasers of these Bridge Notes. In connection with the issuance of these notes, the Company recorded debt discount expenses totaling $2,830 and will amortize these costs over the life of the notes.

In June 2015, the Company authorized the issuance of an aggregate total of 1,875,691 shares of Common Stock as payment for accrued interest for the period from January 1, 2015 through June 30, 2015 under certain convertible notes payable. The Company settled a total of $70,256 in accrued interest, recognizing a gain on settlement in the amount of $23,364. The Company and the holders of the Bridge Notes also agreed to extend the maturity date of the Bridge Notes from June 30, 2015 to December 31, 2015. As consideration for the extension of the maturity date of the Bridge Notes, the Company issued an aggregate total of 286,500 shares of Common Stock to the Bridge Note holders.

In July 2015, the Company issued a Bridge Note in the principal amount of $35,000 and issued an aggregate total of 70,000 shares of Common Stock to the purchaser of the Bridge Note.

BHA Note. On March 31, 2016, BHA agreed to exchange all amounts owed to BHA under the BHA Agreement for a promissory note, on terms substantially similar to the Bridge Notes, in the principal amount of $283,000. The BHA Note matures on December 31, 2016.

At June 30, 2016 and December 31, 2015, the Company’s Convertible Notes Payable are as follows:

	June 30, 2016 (unaudited)		December 31, 2015
Notes Payable	$	872,544	$	814,433
Notes Payable, related party		820,853		495,340
Total notes payable, net of discount	$	1,693,397	$	1,309,773