6.  NOTES PAYABLE:

Unsecured Notes Payable - The Company issued senior unsecured notes payable totaling $90,000 on December 11, 2013.  The notes bear interest at a rate of 12% per annum.  Interest was payable monthly on the first day of each month.  On October 15, 2014, full principal amount of $90,000 and accrued interest in the amount of $1,332 was converted to one share of common stock plus one-half warrant for each $1.75 of the outstanding principal and accrued interest.  The Company issued 52,189 common shares and 26,095 warrants in the private equity offering dated October 1, 2014, see Note 8.

On January 6, 2014, the Company commenced a non-public offering of notes and warrants of up to $1,000,000.  The promissory notes bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016.  As additional consideration for a lender to enter into the Loan Agreement, the Company has agreed to issue to each lender one common stock purchase warrant for each $3.00 loaned to the Company.  The warrants expire three years following the date of issuance and may not be offered for sale, sold, transferred or assigned without the consent of the Company.  The three-year warrants will be exercisable immediately at $3.00 per share.  The Company issued notes in the aggregate principal amount of $850,000 and issued an aggregate of 283,329 warrants to the investors.  The Company allocated the fair value of the warrants in the amount of $248,129 as a discount on notes payable which will be amortized over the term of the notes to interest expense in the income statement. The Company recognized amortization of discount on notes payable in interest expense of $100,999 for the year ended December 31, 2014.  On October 15, 2014, principal in the amount of $500,000 and accrued interest in the amount of $7,397 was converted to one share of common stock plus one-half warrant for each $1.75 of the outstanding principal and accrued interest.  The Company issued 289,941 common shares and 144,970 warrants in the private equity offering dated October 1, 2014, see Note 8.  As of December 31, 2014 there were notes outstanding with a carrying amount of $297,794, net of $52,206 debt discount.

On March 1, 2014, the Company commenced a similar non-public offering of notes and warrants up to $3,000,000 which closed December 31, 2014.  The promissory notes bear interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on January 6, 2016.  Each lender in the offering received one warrant for each $3.00 loaned.  The three-year warrants are exercisable immediately at $3.00 per share.  During 2014, the Company issued notes in the aggregate principal amount of $1,299,003 and were issued with an aggregate of 432,995 warrants to the investors.  The Company allocated the fair value of the warrants in the amount of $207,014 as a discount on notes payable which will be amortized over the term of the notes to interest expense in the income statement.  The Company recognized amortization of discount on notes payable in interest expense of $52,618 for the year ended December 31, 2014.  On October 15, 2014, principal in the amount of $1,229,003 and accrued interest in the amount of $21,758 was converted to one share of common stock plus one-half warrant for each $1.75 of the outstanding principal and accrued interest.  The Company issued 714,720 common shares and 357,360 warrants in the private equity offering dated October 1, 2014, see Note 8.   As of December 31, 2014 there were notes outstanding with a carrying amount of $62,438, net of $7,562 debt discount.

On October 9, 2014, the Company received $75,000 in short-term unsecured debt.  The note bears interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on November 15, 2014.  The note was extended to a maturity date of February 15, 2015.  On December 31, 2014, the full principal amount of $75,000 and accrued interest in the amount of $2,047 was converted to one share of common stock plus one-half warrant for each $1.75 of the outstanding principal and accrued interest.  The Company issued 44,026 common shares and 22,013 warrants in the private equity offering dated October 1, 2014, see Note 8.

On December 11, 2014 the Company received $20,000 in short-term unsecured debt.  The note bears interest at 12% per annum payable monthly, with principal and unpaid interest due and payable on February 15, 2015.  As of December 31, 2014; principal in the amount of $20,000 was outstanding.  On February 23, 2015, the note was converted into a senior secured note payable under a $2 million loan agreement with JMW Fund, Richland Fund, and San Gabriel Fund.

The following table shows the difference between the reacquisition price of debt and the net carrying amount of the extinguished debt.  The Company recognized a loss of $822,205 on the extinguishment of unsecured notes payable during the year ended December 31, 2014.

Revolving line of credit - The Company assumed a revolving line of credit entered into by Dr. Pave at its inception in July 2013 in the amount of $229,980.  The balance on the line of credit bears interest at a rate of 12% per annum.  Interest is payable monthly on the first day of each month.  The principal amount and all then-accrued and unpaid interest is payable on August 15, 2015.  Interest on the line of credit totaling $7,079 was outstanding at December 31, 2014.

Secured Notes Payable - The Company assumed secured notes payable issued by Dr. Pave on December 11, 2013 totaling $160,000.  The notes bear interest at a rate of 12% per annum.  Interest is payable monthly on the first day of each month.  The principal amount and all then accrued and unpaid interest is payable on June 30, 2015.  Interest on the secured notes payable totaling $4,641 was outstanding at December 31, 2014.

In May 2013 the company issued senior secured notes payable totaling $1,000,000. The notes bear interest at a rate of 12% per annum and was payable monthly on the first day of each month.  The entire principal balance and all accrued interest were due September 15, 2013.  In August 2013, principal in the amount of $749,982 was retired through the issuance of Series D preferred shares.  On September 15, 2013 the remaining principal in the amount of $250,018 and accrued interest was paid in full.

Senior Subordinated Note Payable - The Company issued a senior subordinated note payable in the amount of $1,000,000 on April 15, 2011 to Richard Giles, a founder, stockholder and former director of the Company.  The note bears interest at a rate of 6% per annum and matured on April 15, 2014. The holder of the senior subordinated note agreed to subordinate to the lenders of the senior secured notes his security interest in the Company’s assets granted under the Subordinated Security Agreement dated April 15, 2011.  Mandatory principal payments of $500,000 were made in 2013 and the Company made the final required principal payments totaling $500,000 during the first half of 2014.

Loan Payable

In September 2012, the Company financed the purchase of equipment used for transportation and service work performed.  The note, in the original amount of $142,290, bears interest at a rate of 2.6% per annum and matures on September 4, 2017. 

In August 2013, the Company financed the purchase of a truck to transport our equipment used in service and demonstrations.  The loan, in the amount of $83,507, bears interest at a rate of 6.1% per annum and matures on December 1, 2018. 

In September 2014, the Company financed the purchase of equipment used in connection with the Heatwurx equipment to facilitate demonstrations and repairs.  The loan, in the amount of $49,204; matures on October 15, 2018.

As of December 31, 2014, the loans are subject to mandatory principal payments as follows: