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EX-31.1 - EXHIBIT311 - ORANGEHOOK, INC.exhibit311.htm
EX-31.2 - EXHIBIT312 - ORANGEHOOK, INC.exhibit312.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the quarterly period ended September 30, 2014
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the transition period from ____________ to ____________
 
Commission File Number 000-52988
 
logo
NUVEL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
Florida
 
27-1230588
(State or other jurisdiction of
 
(IRS Employer
incorporation or organization)
 
Identification No.)
 
20 S. Santa Cruz Avenue, Los Gatos, California 95030
 (Address of principal executive offices)
 
(408) 899-5981
(Registrant's telephone number)
 
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes o  No x
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨
Accelerated filer                   ¨
   
Non-accelerated filer    ¨
Do not check if a smaller reporting company
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ¨   No    x
 
As of May 4, 2015 the registrant had 15,059,033 shares of common stock, par value $.001 per share, issued and outstanding.
 
 
 
 



 

 
logo

NUVEL HOLDINGS, INC. AND SUBSIDIARY
 
 
     
Page
       
PART I  FINANCIAL INFORMATION
   
       
Item 1.
  3
       
    3
       
    4
       
    5
       
    6
       
Item 2.
  16
       
Item 3.
  20
       
Item 4.
  21
       
PART II  OTHER INFORMATION
   
       
Item 1.
  22
       
Item 2.
  22
       
Item 3.
  23
       
Item 4.
  23
       
Item 5.
  23
       
Item 6.
  23
       
   24
       
   
NUVEL HOLDINGS, INC. AND SUBSIDIARY
 

   
September 30, 2014
   
December 31, 2013
 
   
(unaudited)
       
             
Assets
           
             
Current assets:
           
Cash
 
$
6,353
   
$
-
 
Deferred financing costs, net
   
-
     
20,741
 
Total Assets
 
$
6,353
   
$
20,741
 
                 
Liabilities and Stockholders' Deficiency
               
                 
Current liabilities:
               
Accounts payable
 
$
476,681
   
$
718,552
 
Accounts payable - related parties
   
35,460
     
262,294
 
Accrued interest
   
232,186
     
1,223,612
 
Accrued payroll and related expenses
   
157,387
     
785,395
 
Other accrued expenses
   
136,445
     
60,000
 
Notes payable- net of debt discount of
               
$9,652 and $0 as of September 30, 2014 and December 31, 2013, respectively
   
305.348
     
965.000
 
Convertible notes payable- net of debt discount of
               
$1,016 and $0 as of September 30, 2014 and December 31, 2013, respectively
   
1,261,227
     
2,820,000
 
Derivative liabilities
   
-
     
719,806
 
Total Current Liabilities
   
2,604,734
     
7,554,659
 
                 
Long-term liabilities:
               
Convertible notes payable - net of current portion and debt discount of
               
$0 and $72,119 as of September 30, 2014 and December 31, 2013, respectively
   
-
     
447,881
 
                 
Total Liabilities
   
2,604,734
     
8,002,540
 
                 
Commitments and Contingencies
               
                 
Stockholders' deficiency:
               
Preferred stock, $0.001 par value; 15,000,000 shares authorized;
               
3,813,274 shares issued and outstanding in the following classes:
               
Series A Preferred stock, $0.60 stated value; 7,150,000 shares authorized;
               
25,000 and 641,668 shares issued and outstanding (aggregate liquidation preferences of
               
$30,569 and $822,026) as of September 30, 2014 and December 31, 2013
   
25
     
642
 
Series B Preferred stock, $.001 par value; 2,000,000 shares authorized;
               
549,795 and 0 shares issued and outstanding (aggregate liquidation preferences of $3,340,138
               
and $0) as of September 30, 2014 and December 31, 2013
   
550
     
-
 
Series C Preferred stock, $.001 par value; 2,000,000 shares authorized;
               
1,471,121 and 0 shares issued and outstanding (aggregate liquidation preferences of $9,257,189
               
and $0) as of September 30, 2014  and December 31, 2013
   
1,471
     
-
 
Series D Preferred stock, $.001 par value; 2,000,000 shares authorized;
               
1,767,358 and 0 shares issued and outstanding as of September 30, 2014 and December 31, 2013
   
1,767
     
-
 
Common stock, $0.001 par value; 100,000,000 shares authorized;
               
14,934,033 and 12,218,040 shares issued and outstanding as of September 30, 2014 and December 31, 2013
   
14,934
     
12,218
 
Additional paid in capital
   
11,624,442
     
2,567,219
 
Accumulated deficit
   
(14,241,570
)
   
(10,561,878
)
                 
  Total stockholders' deficiency
   
(2,598,381
)
   
(7,981,799
)
                 
Total liabilities and stockholders' deficiency
 
$
6,353
   
$
20,741
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 


 
 

 
 NUVEL HOLDINGS, INC. AND SUBSIDIARY
(UNAUDITED)

 

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30, 2014
   
September 30, 2013
   
September 30, 2014
   
September 30, 2013
 
                         
Revenue
 
$
-
   
$
-
   
$
-
   
$
1,194
 
                                 
Operating expenses
                               
Marketing and promotion
   
-
     
-
     
8,186
     
12,000
 
Payroll and benefits
   
169,190
     
-
     
346,428
     
257,549
 
General and administrative
   
265,100
     
450
     
307,723
     
132,846
 
Research and development
   
516
     
-
     
7,732
     
46,968
 
Loss on write-off of capitalized software costs
   
-
     
-
     
-
     
68,560
 
Total operating expenses
   
434,806
     
450
     
670,069
     
517,923
 
                                 
Operating loss
   
(434,806
)
   
(450
)
   
(670,069
)
   
(516,729
)
                                 
Other income (expense)
                               
                                 
Interest expense
   
(53,802
)
   
(123,659
)
   
(299,494
)
   
(366,943
)
Amortization of debt discount
   
(6,786
)
   
(46,365
)
   
(57,228
)
   
(187,350
)
Amortization of deferred financing costs
   
-
     
(13,333
)
   
(14,495
)
   
(40,000
)
Change in fair value of derivative liabilities
   
9,250
 
   
77,558
     
964,430
     
494,838
 
Gain on settlement of accounts payable and accrued expenses
   
706,737
     
-
     
677,487
     
-
 
Gain on settlement of accounts payable - related parties
   
-
     
-
     
28,300
     
-
 
Loss on extinguishment of debt
   
(2,265,365
)
   
-
     
(4,308,623
)
   
-
 
                                 
    Total other expense (income)
   
(1,609,966
)
   
(105,799
)
   
(3,009,623
)
   
(99,455
)
                                 
Net loss
   
(2,044,772
)
   
(106,249
)
   
(3,679,692
)
   
(616,184
)
                                 
Preferred stock contractual dividends
   
(55,433
)
   
(7,700
)
   
(67,265
)
   
(23,100
)
                                 
Net loss available to common stockholders
 
$
(2,100,205
)
 
$
(113,949
)
 
$
(3,746,957
)
 
$
(639,284
)
                                 
Net loss per common share: basic and diluted
 
$
(0.15
)
 
$
(0.01
)
 
$
(0.29
)
 
$
(0.05
)
                                 
Weighted average number of common shares outstanding
                               
      - basic and diluted
   
13,858,874
     
12,218,040
     
12,836,764
     
12,123,535
 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 


 

 
 
NUVEL HOLDINGS, INC. AND SUBSIDIARY
(UNAUDITED)
 
 

   
For the Nine Months Ended
 
   
September 30, 2014
   
September 30, 2013
 
             
Cash Flows From Operating Activities:
           
Net loss
 
$
(3,679,692
)
 
$
(616,184
)
Adjustments to reconcile net loss to net cash used in operating activities
               
Amortization of debt discount
   
57,228
     
187,350
 
Amortization of deferred financing costs
   
14,495
     
40,000
 
Loss on write-off of capitalized software costs
   
-
     
68,560
 
Stock based compensation
   
-
     
68,000
 
Change in fair value of derivative liabilities
   
(964,430
)
   
(494,838
)
Gain on non-cash settlement of accounts payable and accrued expenses
   
(677,487
)
   
-
 
Gain on non-cash settlement of accounts payables- related parties
   
(28,300
)
   
-
 
Loss on extinguishment of debt
   
4,308,623
     
-
 
Changes in operating assets and liabilities:
               
Prepaid expenses
   
-
     
1,000
 
Accounts payable
   
201,616
     
246,357
 
Accrued interest
   
300,994
     
366,941
 
Accrued payroll and related expenses
   
33,912
     
74,773
 
Other accrued expenses
   
116,444
     
40,000
 
Net Cash Used in Operating Activities
   
(316,597
)
   
(18,041
)
                 
Net Cash From Investing Activities
   
-
     
-
 
                 
Cash Flows From Financing Activities:
               
Proceeds from issuance of convertible debt
   
322,750
     
-
 
Advances from a related party
   
200
     
17,600
 
Net Cash Provided by Financing Activities
   
322,950
     
17,600
 
                 
Net increase (decrease)  in cash
   
6,353
     
(441
)
                 
Cash, beginning of the period
   
-
     
441
 
                 
Cash, end of the period
 
$
6,353
   
$
-
 
                 
Non-cash investing and financing activities:
               
                 
Convertible notes payable issued to settle accounts payable
 
$
178,245
   
$
-
 
Convertible notes payable issued to settle accounts payable- related parties
 
$
125,000
   
$
-
 
Series A preferred stock issued to settle accounts payable
 
$
26,750
   
$
-
 
Common stock issued to settle accounts payable and accrued expenses
 
$
4,296
   
$
-
 
Common stock and warrants issued to settle accounts payable- related parties
 
$
46,700
   
$
-
 
Series D preferred stock issued with Series D preferred shares issued in conjunction with convertible debt refinancing
 
$
318,124
   
$
-
 
Notes payable and accrued interest converted into Series B preferred stock
 
$
558,178
   
$
-
 
Notes payable and accrued interest converted into Series C preferred stock
 
$
606,317
   
$
-
 
Convertible Notes payable and accrued interest converted into Preferred B stock
 
$
1,606,971
   
$
-
 
Convertible Notes payable and accrued interest converted into Preferred C stock
 
$
5,644,759
   
$
-
 
Warrants issued with New Bridge notes
 
$
1,405
   
$
-
 
Notes payable issued to settle accrued expenses
 
$
40,000
   
$
-
 
Debt discount in conjunction with notes payable refinancing
 
$
16,088
   
$
-
 
Common stock issued with conversion of convertible notes payable into Series B preferred stock
 
$
3,900
   
$
-
 
Officer Contributions in conjunction with settlements of accounts payable
 
$
245,662
   
$
-
 


 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 


 

 

NUVEL HOLDINGS, INC. AND SUBSIDIARY
(Unaudited)
 

Note 1.  Business Organization, Nature of Operations and Reverse Recapitalization

Nuvel Holdings, Inc. (the "Company") seeks to design, develop and markets Data Acceleration solutions that are built for the purpose of accelerating and optimizing the flow of information across Enterprise networks.  The Company’s products are intended to be deployed by its customers throughout their network infrastructures to improve the performance of their networks and reduce network costs, while enhancing network speed and optimization.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the condensed financial position of the Company as of September 30, 2014 and the results of operations and cash flows for the three and nine months ended September 30, 2014.  The results of operations for the three and nine months ended September 30, 2014 are not necessarily indicative of the operating results for the full year ending December 31, 2014 or any other period.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related disclosures of the Company as of December 31, 2013 and for the year then ended, which were filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on November 25, 2014.
 
Note 2.  Going Concern and Management Plans

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As of September 30, 2014, the Company had a working capital deficiency of $2,598,381 and a stockholders’ deficiency of $2,598,381.  The Company has not generated any material revenues and incurred net losses since inception.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.  The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company's primary source of operating funds since inception has been note financings.  Subsequent to September 30, 2014, the Company secured additional debt financing in the form of Notes Payable resulting in gross proceeds of $311,249.  The Company expects that its current cash on hand will fund its operations only through May 2015. The Company intends to raise additional capital through private debt and equity investors. The Company needs to raise additional capital in order to be able to accomplish its business plan objectives.  The Company is continuing its efforts to secure additional funds through debt or equity instruments due to the impending lack of funds.  Management believes that it can be successful in obtaining additional financing based on its limited history of raising funds; however, no assurance can be provided that the Company will be able to do so. There is no assurance that any funds it raises will be sufficient to enable the Company to attain profitable operations or continue as a going concern. To the extent that the Company is unsuccessful, the Company may need to curtail or cease its operations and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations.  There can be no assurance that such a plan will be successful.

On October 24, 2014, the Company entered into a letter of intent (the “Letter of Intent”) with OrangeHook, Inc., (“Orange Hook”) a Minnesota corporation. Pursuant to the Letter of Intent, the Company and OrangeHook will merge or combine their assets, with the Company as the surviving corporation (the “Transaction”). The anticipated closing date is to be on or before June 30, 2015 (“the Closing”).  As a result of the intended business combination, the Company will acquire all of the equity or assets of OrangeHook subject to the terms of the Letter of Intent. The Company will issue common stock to the shareholders of OrangeHook such that after the Transaction (and prior to any financing at the time of the Transaction), OrangeHook shareholders will own approximately 85% of the Company and the pre­Transaction Nuvel shareholders will own approximately 15% of the Company, which is subject  to  adjustment  by  negotiation  of  the parties. Pursuant to the Letter of Intent, OrangeHook provided $311,249 as bridge financing to the Company, in the form of an unsecured loan to assist the Company in completing the necessary filings with the SEC such that it will be current in its reporting obligations. Conditions to Closing include that the Company be current in its SEC reports, that each of the financings set forth in the Letter of Intent have occurred and that any necessary shareholder approval has been obtained. There can be no assurance that the Transaction will be successful. 
 
 
 
 
 
 

 
 
 
 
Note 3.  Summary of Significant Accounting Policies

Principles of Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Nuvel, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from these estimates. The Company’s significant estimates and assumptions include amortization, the fair value of our stock, debt discount, derivative liabilities, and the valuation allowance relating to the Company’s deferred tax assets.

Net Loss Per Share
 
The Company computes basic net loss per share by dividing net loss per share available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The computation of basic and diluted loss per share excludes potentially dilutive securities because their inclusion would be anti-dilutive.  Anti-dilutive securities excluded from the computation of basic and diluted net loss per share for the nine months ended September 30, 2014 and 2013, respectively, are as follows:
 
  
 
September 30,
 
   
2014
   
2013
 
             
Warrants to purchase common stock
    9,026,218       6,285,016  
Series A Convertible Preferred Stock
    25,000       641,668  
Series B Convertible Preferred Stock
    10,995,900       -  
Series C Convertible Preferred Stock
    29,422,420       -  
Series D Convertible Preferred Stock
    1,767,358          
Convertible Notes
    7,012,465       962,963  
   Totals
    58,249,361       7,889,647  

Fair Value of Financial Instruments
 
The carrying amounts of cash, accounts payable, accrued expenses, and notes payable approximate fair value due to the short-term nature of these instruments. The carrying amounts of the Company’s short term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuance of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
 
The Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820, “Fair Value Measurements and Disclosures,” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
 
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Financial liabilities as of September 30, 2014 and December 31, 2013 measured at fair value on a recurring basis are summarized below:
 
   
September 30,
2014
   
Quoted prices in
active markets for
identical assets
(Level 1)
   
Significant
other
observable
inputs
(Level 2)
   
Significant
unobservable
inputs
(Level 3)
 
                         
Derivative conversion features and warrant liabilities
  $ -     $ -     $ -     $ -  
 
 
 
 
 
 
 
 

 
   
December 31,
2013
   
Quoted prices in
active markets for
identical assets
(Level 1)
   
Significant
other
observable
inputs
(Level 2)
   
Significant
unobservable
inputs
(Level 3)
 
                                 
Derivative conversion features and warrant liabilities
 
$
719,806
   
$
-
   
$
-
   
$
719,806
 

Level 3 Valuation Techniques
 
Level 3 financial liabilities consist of the warrant liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation.  Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
 
The derivative liabilities are measured at fair value using a compound option model that includes characteristics of both a binomial lattice and Black-Scholes formula and are classified within Level 3 of the valuation hierarchy.

A significant decrease in the volatility or a significant increase in the Company’s stock price, in isolation, would result in a significantly lower fair value measurement. Changes in the values of the derivative liabilities are recorded in Change in Fair Value of Derivative Liabilities within Other Expense on the Company’s condensed consolidated statements of operations.
 
For the nine months ended September 30, 2014, there were no transfers in or out of Level 3 from other levels in the fair value hierarchy.

The significant assumptions and valuation methods that the Company used to determine the fair value of the derivative liabilities at September 30, 2014 are as follows:

Dividend Yield
   
0
%
Volatility
   
36.00-68.32
%
Risk-free interest rate
   
0.03-1.78
%
Expected lives
 
0.77-4.67 years
 
Weighted average fair value per warrant
 
$
0.00
 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:
 
   
Nine Months Ended
September 30, 2014
 
       
 Balance-beginning of period
 
$
719,806
 
Aggregate fair value of derivatives issued with extinguishment of convertible notes payable
   
135,289
 
Change in fair value of derivative liabilities included in the Loss on extinguishment of debt
   
109,335
 
Change in fair value of derivative liabilities
   
(964,430
)
Balance-end of period
 
$
-
 

Subsequent Events

Management has evaluated subsequent events or transactions occurring through the date on which the financial statements were issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, except as disclosed.
 
 
 
 
 
 
 

 
Note 4.  Secured Convertible Promissory Notes
 
Amendment to November 2012 Notes

In April 2014, the Company entered into an amendment to the Subscription Agreement the convertible notes issued on November 21, 2012 in the principal amount of $520,000 (“November 2012 Notes”).  The maturity date of the notes was extended from May 21, 2014 to April 8, 2015, with an additional extension at the option of the investors.  The notes matured on April 8, 2015, and as of the date of this filing, the notes have not been repaid.  In exchange for extending the maturity date, the Company modified the following terms of the Subscription Agreement:
 
·
The combined principal of $520,000, accrued interest of $71,660 and additional default interest of $44,589 on the original note was modified to a new principal balance of $636,249.
·
The conversion price of the notes was reduced from $0.54 to $0.18. The increase in the fair value of the note conversion liability was $135,289.
·
The notes will automatically convert into common stock if no event of default occurs and if during any 20 trading days (i) the average daily trading volume is at least $50,000, (ii) the closing price of the stock is at least 250% of the conversion price and (iii) all conversion shares are registered for resale or are eligible for resale without restriction under Rule 144.
·
The warrants issued were increased from 462,963 to 1,800,412 and the exercise price of the warrants was reduced from $0.30 to $0.25. The increase in the fair value of the warrants was $107,803.
·
1,767,358 shares of Series D Preferred Stock, which is convertible to common stock on a 1-for-1 basis, were issued with a fair value of $318,124.  The Series D Preferred shares were each valued at $0.18, which was the same value as a common share since the characteristics were equivalent to those of common shares.

In accordance with ASC 470-50-40-10, since the present value of the cash flows under the new debt instrument was at least ten percent different from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for the amendment to the Subscription Agreement of the November 2012 Notes as a debt extinguishment.  Accordingly, the Company wrote off the remaining debt discount and deferred financing costs on the original loan of $21,714 and $6,245, respectively, and Company recorded a $633,766 loss on extinguishment of debt in the condensed consolidated statement of operations.
 
New Bridge Notes

During the second quarter of 2014, the Company issued $158,750 in New Bridge convertible notes (“New Bridge Notes”) to noteholders and Series A Preferred Stockholders who decided to invest at least 15% of their original investments in the New Bridge Notes. The notes bear interest at 8% and mature in one year.  The maturity date can be extended by 60 days in exchange for increasing the interest rate to 18% retroactive to the note issuance date.   If a qualified financing occurs, defined as a sale of debt or equity securities aggregating at least $2 million in gross proceeds, all principal and accrued interest will convert into common stock at 90% of the share price of the qualified securities.  If no qualified financing occurs, investors can convert the New Bridge Note into common stock at $0.18 per share and the investors received warrants to purchase common stock with a five year term at an exercise price of the lesser of $0.25 or the per share price of the qualified securities (defined as the securities that are sold in the qualified financing).  Since both the contingent note conversion and warrant exercise features were determined to be indexed to the Company’s equity in accordance with ASC 815-40-15-7A and 815-40-15-7C, the Company determined that derivative treatment wasn’t required.  The investors’ warrant share coverage equaled to 50% of the New Bridge Notes divided by the conversion price.  In total, the investors received 440,973 warrants with a relative fair value of $1,405, which was recorded as a debt discount to be amortized over the life of the notes.

In addition, during the second quarter of 2014, the Company received proceeds of $126,500 in intended New Bridge Notes.  However, as of June 30, 2014, the investors did not complete the necessary documentation for the Company to issue the notes.  As a result, as of June 30, 2014, $126,500 was accounted for as a non-interest bearing short term convertible promissory notes.

During the third quarter of 2014, the Company issued New Bridge Notes in aggregate principal amount of $289,000.  The New Bridge Notes issued during the third quarter of 2014 consisted of $37,500 in gross proceeds received during the third quarter of 2014, $126,500 in gross proceeds received during the second quarter of 2014 for which the necessary documentation for the Company to issue the notes was completed, and $125,000 in converted accounts payable (see “Conversion of Accounts Payable into Convertible Notes” later in Note 4).  In total, the investors of such New Bridge Notes received 802,780 warrants with a fair value of $0.

Conversion of Accounts Payable into Convertible Notes

In April 2014, the Company reached a settlement agreement with a law firm on $146,055 of outstanding accounts payable. The Company issued the law firm a $138,555 convertible bridge note bearing interest at 8% and maturing in one year.  The note matured, as of the date of this report, has not been repaid.  The note converts into common stock at the option of the holder of such note at $0.18 per share and will automatically convert at 90% of the share price of the qualified securities if a qualified financing of $2 million occurs. Since the active note conversion feature was determined to be indexed to the Company’s equity in accordance with ASC 815-40-15-7A and 815-40-15-7C, the Company determined that derivative treatment wasn’t required.  The Company also agreed to pay the law firm $25,000 at a later date contingent upon the Company receiving the first $1 million in gross proceeds from a future bridge note or other qualified offering.  A loss on settlement of accounts payable of $17,500 was recorded in the condensed consolidated statement of operations.

In May 2014, the Company reached a settlement agreement with a law firm on $49,613 in outstanding accounts payable. The Company issued the law firm a $39,690 convertible bridge note bearing interest at 8% and maturing in one year. The note converts into common stock at the option of the holder of such note at $0.18 per share and will automatically convert at 90% of the share price of the qualified securities if a qualified financing of $2 million occurs. Since the contingent note conversion feature was determined to be indexed to the Company’s equity in accordance with ASC 815-40-15-7A and 815-40-15-7C, the Company determined that derivative treatment wasn’t warranted.  The Company agreed to pay the remaining balance of $9,922 in accounts payable a later date contingent upon the Company receiving the first $1 million in gross proceeds from a future bridge note or $2 million a future qualified offering, as defined.
 
 
 
 
 
 
 
 

 
In July 2014, the Company reached a settlement agreement with a consultant on $160,460 of outstanding accounts payable by issuing a $125,000 convertible New Bridge Note and a warrant to purchase 347,222 shares of common stock with a five year term at an exercise price of $0.25.
Such amounts are included in the “New Bridge Notes” section of this footnote.

The Company also agreed to pay the consultant the remaining $35,460 contingent upon the Company receiving the first $2 million in gross proceeds from a future offering of securities.  Since the Company didn’t receive the first $2 million in gross proceeds from an offering of securities by October 31, 2014, the Company issued a New Bridge Note and a warrant to purchase 98,500 shares of common stock with a five year term to the consultant.

Waiver and Conversion of Existing Convertible Notes into Series B and Series C Preferred Stock

In June 2014, certain investors of the convertible notes which were sold previously during February 2010 through December 2011 signed a waiver and amendment agreement to convert their convertible promissory notes and their accrued interest into Series B Preferred Stock.  The terms of the waiver and amendment agreement were as follows:
 
 In exchange for waiving their default rights and default interest, the investors each received an additional one-time interest accrual of 24% of the face value of their respective notes over the entire term of the notes.  In total, the investors received an additional one-time interest accrual of $298,733.
 The principal and accrued interest on each promissory note converted into Series B Preferred Stock at a conversion price of $5.00.  In total, $347,500 of principal and $449,290 in accrued interest converted into 159,359 shares of Series B Preferred Stock with a fair value of $788,827.  The Series B Preferred shares were each valued at $4.95 based on a liquidation preference model.
 The exercise price of the 404,773 warrants (including 370,203 derivative warrants) attached to the convertible notes was reduced to $0.30 per share, and the expiration date of the warrants was changed to June 1, 2019. The increase in the fair value of the warrants was $662.
The Company issued 150,000 shares of common stock with a fair value of $3,900, based on a liquidation preference model, to induce the investors to convert their notes.
 
In accordance with ASC 470-50-15-2, since the debt converted into equity on terms that do not represent the exercise of a conversion right contained in the terms of the debt at issuance, the Company accounted for the convertible promissory note conversion as  debt extinguishments.  Accordingly, the Company recorded a $295,332 loss on extinguishment of debt in the condensed consolidated statement of operations.
 
In July, August and September 2014, certain investors of the notes which were sold previously during February 2010 through December 2011 signed a waiver and amendment agreement to convert their convertible promissory notes and accrued interest into Series B Preferred Stock. The terms of the waiver and amendment agreement were as follows:
 
In exchange for waiving their default rights and default interest, the investors each received an additional one-time interest accrual of 30% of the face value of their respective notes over the entire term of the notes.  In total, the investors received an additional one-time interest accrual of $481,726.
The principal and accrued interest on each promissory note converted into Series B Preferred Stock at a conversion price of $5.00.  In total, $462,500 of principal and $573,123 in accrued interest converted into 207,125 shares of Series B Preferred Stock with a fair value of $818,144.  The Series B Preferred shares were each valued at $3.95 based on a liquidation preference model.
The exercise price of the 488,156 warrants (including 471,906 derivative warrants) attached to the convertible notes was reduced to $0.30 per share, and the expiration date of the warrants was changed to June 1, 2019.  The increase in the fair value of the warrants was $0.

In accordance with ASC 470-50-15-2, since the debt converted into equity on terms that do not represent the exercise of a conversion right contained in the terms of the debt at issuance, the Company accounted for the convertible promissory note conversions as  debt extinguishments.  Accordingly, the Company recorded a $445,584 loss on extinguishment of debt in the condensed consolidated statement of operations.
 
In June 2014, certain investors of the notes which were sold previously during February 2010 through December 2011 signed a waiver and amendment agreement to convert their convertible promissory notes and accrued interest into Series C Preferred Stock and to invest at least 15% of their original investment in a New Bridge Note.  The terms of the waiver and amendment agreement were as follows:
 
 In exchange for waiving their default rights and default interest, the investors each received a additional one-time interest accrual of 30% of the face value of their respective notes over the entire term of the notes.  In total, the investors received an additional one-time interest accrual of $481,726.
The principal and accrued interest on each promissory note converted into Series C Preferred Stock at a conversion price of $3.6923.  In total, $600,000 of principal and $675,244 in accrued interest converted into 345,379 shares of Series C Preferred Stock with a fair value of $1,778,702.  The Series C Preferred shares were each valued at $5.15 based on a liquidation preference model.
The exercise price of the 569,660 derivative warrants attached to the convertible notes was reduced to $0.25 per share, and the expiration date of the warrants was changed to June 1, 2019.  The increase in the fair value of the warrants was $917.
 
In accordance with ASC 470-50-15-2, since the debt converted into equity on terms that do not represent the exercise of a conversion right contained in the terms of the debt at issuance, the Company accounted for the convertible promissory note conversions as  debt extinguishments.  Accordingly, the Company recorded a $986,101 loss on extinguishment of debt in the condensed consolidated statement of operations.
 
 
 
 
 
 
 
- 10 -


 
 
 
In July, August and September 2014, certain investors of the notes which were sold previously during February 2010 through December 2011 signed a waiver and amendment agreement to convert their convertible promissory notes and accrued interest into Series C Preferred Stock and to invest at least 15% of their original investment in a New Bridge Note. The terms of the waiver and amendment agreement were as follows:
 
 In exchange for waiving their default rights and default interest, the investors each received an additional one­ time interest accrual of 30% of the face value of their respective notes over the entire term of the notes.  In total, the investors received an additional one-time interest accrual of $1,455,526.
The principal and accrued interest on each promissory note converted into Series C Preferred Stock at a conversion price of $3.6923.  In total, $1,410,000 of principal and $2,071,614 in accrued interest converted into 942,941 shares of Series C Preferred Stock with a fair value of $3,866,058.  The Series C Preferred shares were each valued at $4.10 based on a liquidation preference model.
 The exercise price of the 1,567,127 warrants (including 1,471,127 derivative warrants) attached to the convertible notes was reduced to $0.25 per share, and the expiration date of the warrants was changed to June 1, 2019.  The increase in the fair value of the warrants was $0.
 The Company issued 625,000 shares of common stock valued at $0 to induce the investors to convert their notes.

In accordance with ASC 470-50-15-2, since the debt converted into equity on terms that do not represent the exercise of a conversion right contained in the terms of the debt at issuance, the Company accounted for the convertible promissory note conversions as  debt extinguishments.  Accordingly, the Company recorded a $1,558,071 loss on extinguishment of debt in the condensed consolidated statement of operations.
 
During the three months ended September 30, 2014 and 2013, the Company recognized $350 and $46,365 in amortization of the debt discount relating to convertible notes payable.  During the nine months ended September 30, 2014 and 2013, the Company recognized $50,792 and $176,153 in amortization of the debt discount relating to convertible notes payable.
 
During the three months ended September 30, 2014 and 2013, the Company marked the warrants and derivative conversion feature to fair value and recorded a gain of $6,874 and $77,558, respectively, relating to the change in fair value of derivative liabilities issued in connection with the convertible notes. During the nine months ended September 30, 2014 and 2013, the Company marked the warrants and derivative conversion feature to fair value and recorded a gain of $650,790 and $494,838, respectively, relating to the change in fair value of derivative liabilities issued in connection with the convertible notes.

Note 5.  Notes Payable

Conversion of Accounts Payable into Notes Payable

In March 2014, the Company issued a note payable for $40,000 to settle a contract with a consulting company which was previously accrued.  The note bears no interest unless an event of default occurs, in which the interest rate would adjust to the lesser of 1.5% per month or the maximum permitted under applicable law.  The first $20,000 of the note payable is due upon the Company raising at least $500,000 in gross proceeds in a subsequent bridge note offering, and the other $20,000 of the note payable is due upon the Company raising at least $750,000 in gross proceeds in a subsequent bridge note offering. As of the date of this report, the Company has not raised the required gross proceeds in the bridge offering to pay back any portion of the note.

Amendments to Notes

In August 2014, the Company entered into an amendment to a note subscription agreement with an investor with a note principal amount of $175,000.  The Company agreed to pay back the investor $100,000 in principal within five business days after the Company raises gross proceeds of at least $2 million in securities offerings, and the Company agreed to pay back the investors the remaining $75,000 in principal within five business days after the Company raises gross proceeds of at least $3 million securities offerings, but in no event later than December 31, 2014.  As of the date of this filing, the note has not been repaid and is past due.  In exchange for extending the maturity dates, the Company modified the following terms of the subscription agreement:
 
 The investor received 8% additional interest retroactive to the original note issuance dates.  The retroactive interest totaled $51,666.  In addition, the investor will accrue an additional 8% interest on the note until the note is repaid.
250,000 shares of common stock valued at $0 were issued to the investor.

In accordance with ASC 470-50-40-10, since the present value of the cash flows under the new debt instrument was at least ten percent different from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for the amendment to the note subscription agreement as a debt extinguishment.  Accordingly, the Company recorded a $51,666 loss on extinguishment of debt in the condensed consolidated statement of operations.

In August 2014, the Company entered into an amendment to a note subscription agreement with an investor with a note principal amount of $100,000.  The Company agreed to pay back the investor $60,000 in principal within five business days after the Company raises gross proceeds of at least $2 million in securities offerings, and the Company agreed to pay back the investors the remaining $40,000 in principal within five business days after the Company raises gross proceeds of at least $3 million securities offerings, but in no event later than December 31, 2014.  As of the date of this filing, the note has not been repaid and is past due.  In exchange for extending the maturity dates, the Company modified the following terms of the subscription agreement:
 
 The investor received 8% additional interest retroactive to the original note issuance dates.  The retroactive interest totaled $16,088.  In addition, the investor will accrue an additional 8% interest on the note until the note is repaid.
A total of 125,000 shares of common stock valued at $0 were issuable to the investor.  In February 2015, the investor was issued 125,000 shares.

In accordance with ASC 470-50-40-10, since the present value of the cash flows under the new debt instrument was not at least ten percent different from the present value of the remaining cash flows under the terms of the original debt instrument, the Company accounted for the amendment to the note subscription agreement as a debt modification.  Accordingly, the Company recorded a debt discount of $16,088 in the condensed consolidated balance sheet.
 
 
 
 
 
 
- 11 -


 
 
 
Waiver and Conversion of Existing Notes into Series B and Series C Preferred Stock

In June 2014, an investor signed a waiver and amendment agreement to convert his note payable and accrued interest into Series C Preferred Stock, and to invest at least 15% of his original investment in a New Bridge Note.  The terms of the waiver and amendment agreement were as follows:
 
  In exchange for waiving his default rights and default interest, the investor received an additional one-time interest accrual of 30% of the face value of his note over the entire term of the note.  The additional one-time interest accrual was $57,041.
The $100,000 principal and $79,890 accrued interest on the investor’s promissory note converted into 48,720 shares of Series C Preferred Stock at a conversion price of $3.6923.  The fair value of the Series C Preferred Stock was $250,908.  The Series C Preferred shares were each valued at $5.15 based on a liquidation preference model.

In accordance with ASC 470-50-15-2, since the debt converted into equity on terms that do not represent the exercise of a conversion right contained in the terms of the debt at issuance, the Company accounted for the promissory note conversions as debt extinguishments. Accordingly, the Company recorded a $128,059 loss on extinguishment of debt in the condensed consolidated statement of operations

In July 2014, an investor signed a waiver and amendment agreement to convert his notes payable and accrued interest into Series B Preferred Stock.  The terms of the waiver and amendment agreement were as follows:

 In exchange for waiving his default rights and default interest, the investor received an additional one­ time interest accrual of 24% of the face value of their respective notes over the entire term of the notes. The additional one-time interest accrual was $237,350.
The principal and accrued interest on each promissory note converted into Series B Preferred Stock at a conversion price of $5.00.  $390,000 of principal and $316,552 in accrued interest converted into 141,311 shares of Series B Preferred Stock with a fair value of $558,178.  The Series B Preferred shares were each valued at $3.95 based on a liquidation preference model.
The exercise price of the 2,039,000 warrants (including 2,000,000 derivative warrants) attached to the convertible notes was reduced to $0.30 per share, and the expiration date of the warrants was changed to June 1, 2019.  The increase in the fair value of the warrants was $0

In accordance with ASC 470-50-15-2, since the debt converted into equity on terms that do not represent the exercise of a conversion right contained in the terms of the debt at issuance, the Company accounted for the promissory note conversions as  debt extinguishments. Accordingly, the Company recorded an $88,976 loss on extinguishment of debt in the condensed consolidated statement of operations

In July 2014, certain investors signed a waiver and amendment agreement to convert their notes payable and accrued interest into Series C Preferred Stock and to invest at least 15% of their original investment in a New Bridge Note.  The terms of the waiver and amendment agreement were as follows:

 In exchange for waiving their default rights and default interest, the investors each received an additional one­ time interest accrual of 30% of the face value of their respective notes over the entire term of the notes.  In total, the investors received an additional one-time interest accrual of $85,726.
The principal and accrued interest on each promissory note converted into Series C Preferred Stock at a conversion price of $3.6923.  In total, $200,000 of principal and $120,066 in accrued interest converted into 86,685 shares of Series C Preferred Stock with a fair value of $355,409.  The Series C Preferred shares were each valued at $4.10 based on a liquidation preference model.
A total of 350,000 shares of common stock valued at $0 were issued to the investors.

In accordance with ASC 470-50-15-2, since the debt converted into equity on terms that do not represent the exercise of a conversion right contained in the terms of the debt at issuance, the Company accounted for the promissory note conversions as debt extinguishments. Accordingly, the Company recorded a $121,068 loss on extinguishment of debt in the condensed consolidated statement of operations.
 
During the three months ended September 30, 2014 and 2013, the Company recognized $6,436 and $0 in amortization of the debt discount relating to notes payable, respectively.  During the nine months ended September 30, 2014 and 2013, the Company recognized $6,436 and $11,197 in amortization of the debt discount relating to notes payable, respectively.

During the three months ended September 30, 2014 and 2013, the Company marked the warrants and derivative conversion feature to fair value and recorded a gain of $2,376 and $23,680, respectively, relating to the change in fair value of derivative liabilities issued in connection with the notes payable. During the nine months ended September 30, 2014 and 2013, the Company marked the warrants and derivative conversion feature to fair value and recorded a gain of $313,640 and $154,375, respectively, relating to the change in fair value of derivative liabilities issued in connection with the notes payable.
 
Note 6.  Commitments and Contingencies

Services Agreement

On March 11, 2014, the Company signed a services agreement with Richard Resnick to provide services equivalent to a Chief Executive Officer.  The Company agreed to pay Mr. Resnick $25,000 per month in bi-monthly installments.  Either party is entitled to terminate the services agreement by providing the other party 15 days written notice of such desired termination.  As of September 30, 2014, the Company owed Mr. Resnick $110,000 under the services agreement, which is noted as accounts payable in the accompanying condensed consolidated balance sheet.
 
 
 
 
 
 
- 12 -

 
 

 
Operating Lease
 
In April 2014, the Company leased a satellite office in Los Gatos, California at a variable monthly rate based on office usage.  Rent expense for the three months ended September 30, 2014 and 2013 was $536 and $0, respectively.  Rent expense for the nine months ended September 30, 2014 and 2013 was $1,043, and $3,200, respectively.
  
Litigations, Claims and Assessments
 
In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There were no such matters as of September 30, 2014.

As of September 30, 2014 and through the date of this report, the Company has not filed certain federal and state income and payroll tax returns nor has it paid the payroll tax amounts and related interest and penalties relating to such returns.  Amounts due under these returns have been accrued as a component of accrued payroll and related expenses as of September 30, 2014. 

Note 7.  Stockholders’ Deficiency 

Authorization of New Classes of Preferred Stock

In April 2014, the Company authorized the issuance of 2,000,000 shares of Series D Preferred Stock, which has the following characteristics:

·
Par value of $0.001
·
Conversion to common stock at a one to one ratio
·
Shareholder rights equivalent to common shareholders
·
Liquidation preferences equivalent to common shareholders
·
Voting rights equivalent to common shareholders
·
Holders of Series D Preferred Stock can convert it to the extent that their ownership of the Company’s stock aggregately does not exceed 4.99%

In May 2014, the Company authorized the issuance of 2,000,000 shares of Series B Preferred Stock, which has the following characteristics:

·
Par value of $0.001
·
Original purchase price of $6.00 per share
·
One share of Series B Preferred Stock is convertible into 20 shares of common stock
·
Cumulative 6% dividends, which can be paid in common stock at a share price equal to the average of the weighted volume average price for the 20 business days preceding the dividend date
·
Voting rights are one vote for each whole share of common stock that the Series B Preferred Stock can convert into
·
Automatic conversion into Common Stock at the earlier of the third anniversary of the original issuance date or six months after the final closing of a qualified financing at a rate which is calculated by dividing the original purchase price by the conversion price if during 20 consecutive trading days the weighted volume average of Common Stock is at least $0.60, and trading volume is at least $150,000.
·
Liquidation rights at 100% of the original purchase price

In May 2014, the Company authorized the issuance of 2,000,000 shares of Series C Preferred Stock, which has the following characteristics:

·
Par value of $0.001
·
Original purchase price of $4.80 per share
·
One share of Series C Preferred Stock is convertible into 20 shares of common stock
·
Cumulative 6% dividends, which can be paid in common stock at a share price equal to the average of the weighted volume average price for the 20 business days preceding the dividend date
·
Voting rights are one vote for each whole share of common stock that the Series C Preferred Stock can convert into
·
Automatic conversion into Common Stock at the earlier of the third anniversary of the original issuance date or six months after the final closing of a qualified financing at a rate which is calculated by dividing the original purchase price by the conversion price if during 20 consecutive trading days the weighted volume average of Common Stock is at least $0.60, and trading volume is at least $150,000.
·
Liquidation rights at 130% of the original purchase price
 
 
 
 
 
 
 
- 13 -


 
 
 
Conversion of Accounts Payable into Common Stock and Series A Preferred Stock

During the second quarter of 2014, the Company reached a settlement agreement with its former CFO on $7,160 of outstanding accounts payable by issuing 23,867 shares of Common Stock with a fair value of $4,296.  An officer capital contribution of $2,864 was recorded to Additional paid in capital.

During the second quarter of 2014, the Company reached a settlement agreement with a related party consultant on $75,000 of outstanding accounts payable by issuing 166,667 Common Stock with a fair value of $30,000.  In addition, the Company issued the consultant 200,000 warrants to purchase common stock with a five year term at a $0.30 exercise price with a fair value of $16,700. A gain on settlement of accounts payable – related parties of $28,300 was recorded in the condensed consolidated statement of operations.

During the second quarter of 2014, the Company reached settlement agreements with former employees and consultants on $15,000 of outstanding accounts payable by issuing 25,000 shares of Series A Preferred Stock valued at $26,750 based on a liquidation preference model.  A loss on settlement of accounts payable of $11,750 was recorded in the condensed consolidated statement of operations.

During the third quarter of 2014, the Company reached a settlement agreement with its former Chief Executive Officer and current Chairman of the Board of Directors on $242,798 of outstanding accounts payable and accrued expenses by issuing 423,789 shares of Common Stock valued at $0. An officer capital contribution of $242,798 was recorded to Additional paid in capital.

During the third quarter of 2014, the Company reached settlement agreements with former employees and consultants on $706,737 of accounts payable and accrued expenses by issuing 726,670 shares of Common Stock valued at $0.  A gain on settlement of accounts payable and accrued expenses of $706,737 was recorded in the condensed consolidated statement of operations.

Waiver and Conversion of Series A Preferred Stock into Series B and Series C Preferred Stock

In June 2014, an investor signed a waiver and amendment agreement to convert shares of Series A Preferred Stock into shares of Series B Preferred Stock at a ratio of 8.3333 to 1. The investor exchanged 41,667 shares of Series A Preferred Stock for 5,000 shares of Series B Preferred Stock and the exercise price on the investor’s 20,834 warrants attached to the stock was reduced to $0.30.  Since the warrants were equity warrants, the reduction in the exercise price had no impact on the condensed consolidated statement of operations.

In June 2014, an investor signed a waiver and amendment agreement to convert shares of Series A Preferred Stock into shares of Series C Preferred Stock at a ratio of 6.15384 to 1 and to invest at least 15% of his original investment in a New Bridge Note.  The investor invested $3,750 in a New Bridge Note, exchanged 41,667 shares of Series A Preferred Stock for 6,771 shares of Series C Preferred Stock and the exercise price on the investor’s 20,834 warrants attached to the stock was reduced to $0.25.  Since the warrants were originally classified as equity warrants, the reduction in the exercise price had no impact on the condensed consolidated statement of operations.

In July and August 2014, investors signed a waiver and amendment agreement to convert shares of Series A Preferred Stock into shares of Series B Preferred Stock at a ratio of 8.3333 to 1. The investors exchanged 308,334 shares of Series A Preferred Stock for 37,001 shares of Series B Preferred Stock and the exercise price on the investors’ 154,168 warrants attached to the stock was reduced to $0.30.  Since the warrants were originally classified as equity warrants, the reduction in the exercise price had no impact on the condensed consolidated statement of operations.
 
In July 2014, investors signed a waiver and amendment agreement to convert shares of Series A Preferred Stock into shares of Series C Preferred Stock at a ratio of 6.15384 to 1 and to invest at least 15% of their original investment in a New Bridge Note. The investors exchanged 250,000 shares of Series A Preferred Stock for 40,625 shares of Series C Preferred Stock and the exercise price on the investors’ 125,001 warrants attached to the stock was reduced to $0.25.  Since the warrants were equity warrants, the reduction in the exercise price had no impact on the condensed consolidated statement of operations.

Warrants

Details of warrants outstanding are as follows:
   
Shares
   
Weighted
Average
Exercise Price
   
Weighted
Average
Remaining
Contractual Term
   
Aggregate
Intrinsic
Value
 
                                 
Warrants outstanding and exercisable at December 31, 2013
   
6,285,016
   
$
0.57
   
 $
4.87
   
$
-
 
                                 
Granted
   
2,781,202
   
$
0.22
   
$
4.34
         
Expired
   
(40,000
 )
 
 $
0.70
     
-
         
Exercised
   
-
     
-
     
-
         
                                 
Warrants outstanding and exercisable at September 30, 2014
   
9,026,218
   
$
0.20
   
$
4.37
   
$
-
 
 
 
 
 
 
 
- 14 -

 
 
 
 
 
Note 8.  Related Party Transactions

On February 1, 2010, the Company engaged a placement agent agreement (“Placement Agent Agreement”) with Middlebury Group LLC, where one director of the Company worked as a partner, to act as the placement agent in connection with a private placement offering comprised of bridge notes, convertible Preferred Stock, senior secured promissory notes, convertible notes, and warrants as required.  The agreement provides for a monthly retainer fee of $10,000 and a placement fee equal to ten percent of the aggregate purchase price paid by each investor.   As of December 31, 2013, the Company had amounts due to Middlebury of $75,000 for services rendered pursuant to the Placement Agent Agreement, and such amounts were included as part of accounts payable - related parties.  As discussed in Note 7, the Company reached a settlement agreement with Middlebury and settled the $75,000 in outstanding accounts payable by issuing 166,667 shares of common stock and 200,000 warrants to purchase common stock with a five year term at a $0.30 exercise price.

During the nine months ended September 30, 2014 and 2013, the Company received advances from related parties of $200 and $17,600, respectively.  These advances are non-interest bearing and are due on demand.  As of both September 30, 2014 and December 31, 2013, the amounts due to these related parties totaled $35,460 and $188,294, respectively, and are included as part of Accounts payable – related parties.
 
Note 9. Subsequent Events

Conversion of Accounts Payable into Convertible Notes

The Company agreed to pay a related party consultant the remaining $35,460 contingent owed to him upon the Company receiving the first $2 million in gross proceeds from a future offering of securities.  Since the Company didn’t receive the first $2 million in gross proceeds from an offering of securities by October 31, 2014, the Company issued a New Bridge Note and 98,500 warrants to purchase common stock with a five year term to the consultant.

Unsecured Bridge Loan

As disclosed in Note 2, on October 24, 2014, OrangeHook entered into a Letter of Intent with the Company and provided $311,249 as bridge financing to the Company, in the form of an unsecured loan.

Issuance of Common Stock

As mentioned in Note 5, in February 2015, an investor was issued 125,000 shares in conjunction with an amendment to a note subscription agreement.
 
Issuance of Warrants for Professional Services
 
In April 2015, the  Board of Directors authorized the issuance of warrants to purchase shares of common stock with a five year term at a $0.20 exercise price for professional services rendered by the following parties:
 
   1,500,000 warrants were issued to a law firm
   1,418,846 warrants were issued to a CFO outsourcing firm
   8,513,078 warrants were issued to Mr. Resnick
 
As of the date of this report, the warrants have not been issued.
 
 
 
 

 
- 15 -

 
 

 
 
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.
 
Certain statements in this Report constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
 
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
 
The "Company", "we," "us," and "our," refer to (i) Nuvel Holdings, Inc., a Florida corporation, and (ii) Nuvel, Inc., a Delaware corporation, which is a wholly-owned subsidiary of Nuvel Holdings, Inc.
 
Plan of Operations

The Company, through its wholly-owned subsidiary Nuvel DE, plans to engage in the business of designing, developing and selling a family of proxy and other appliances, and related software and services that secure, accelerate and optimize the delivery of business applications, Web content and other information to distributed users over private Enterprise networks, or across an enterprise’s gateway to the public Internet (also known as the Web). Our products will strive to provide our end user customers with information about the applications and Web traffic running on their networks, including the ability to discover, classify, manage and control communications between users and applications across internal networks, the WAN and the Internet. Our products are also designed with the intent to accelerate and optimize the performance of our end users’ business applications and content, whether used internally or hosted by external providers.

Our primary activities have been working on developing the design and development of our products, seeking to negotiate strategic alliances and other agreements and attempting to raise capital. We have not commenced our principal operations, nor have we generated any material revenues.  Since inception, we have incurred substantial losses. As of September 30, 2014 and December 31, 2013, our accumulated deficit was $14,241,570 and $10,561,878, respectively, our stockholders’ deficiency was $2,598,381 and $7,981,799, respectively, and our working capital deficiency was $2,598,381 and $7,533,918, respectively. We have not yet generated revenues and our losses have principally been operating expenses incurred in design, development, marketing and promotional activities in order to commercialize our products. We expect to continue to incur additional costs for operating and marketing activities over at least the next year.

Based upon our working capital deficiency as of September 30, 2014 and December 31, 2013 and the lack of any revenues, we require equity and/or debt financing to continue our operations. Subsequent to September 30, 2014, the Company secured additional debt financing in the form of Notes Payable resulting in gross proceeds of $311,249.  The Company expects that its current cash on hand will fund its operations only through May 2015. The Company intends to raise additional capital through private debt and equity investors. The Company needs to raise additional capital in order to be able to accomplish its business plan objectives.  The Company is continuing its efforts to secure additional funds through debt or equity instruments due to the impending lack of funds.  Management believes that it will be successful in obtaining additional financing based on its limited history of raising funds; however, no assurance can be provided that the Company will be able to do so. There is no assurance that any funds it raises will be sufficient to enable the Company to attain profitable operations or continue as a going concern. To the extent that the Company is unsuccessful, the Company may need to curtail or cease its operations and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations.  There can be no assurance that such a plan will be successful.  See “Liquidity and Capital Resources” and “Availability of Additional Funds” below.
 
On October 24, 2014, the Company entered into a letter of intent (the “Letter of Intent”) with OrangeHook, Inc., (“Orange Hook”) a Minnesota corporation. Pursuant to the Letter of Intent, the Company and OrangeHook intend to merge or combine their assets, with the Company as the surviving corporation (the “Transaction”). The anticipated closing date is to be on or before June 30, 2015 (“the Closing”). As a result of the intended business combination, the Company will acquire all of the equity or assets of OrangeHook subject to the terms of the Letter of Intent. The Company will issue common stock to the shareholders of OrangeHook such that after the Transaction (and prior to any financing at the time of the Transaction), OrangeHook shareholders will own approximately 85% of the Company and the pre­-Transaction Nuvel shareholders will own approximately 15% of the Company, which is subject  to  adjustment  by  negotiation  of  the parties.  OrangeHook provided $311,249 as bridge financing to the Company, in the form of an unsecured loan to assist the Company in completing the necessary filings with the SEC such that it will be current in its reporting obligations. Conditions to Closing include that the Company will be current in its SEC reports, that each of the financings set forth in the Letter of Intent has occurred and that any necessary shareholder approval has been obtained. There can be no assurance that the Transaction will be successful.
 
 
 
 
 
 
 
- 16 -

 
 
 
 
Three Months Ended September 30, 2014 compared with Three Months Ended September 30, 2013
 
Payroll and benefits
 
Payroll and benefits consist primarily of salaries and benefits to employees. For the three months ended September 30, 2014, payroll and benefits increased by $169,190 as compared to the three months ended September 30, 2013. The increase was due to the approximate $323,000 in cash received from New Bridge Notes during the second and third quarters of 2014 which allowed the Company to re-hire some of its former employees to resume operations on a limited basis.
 
General and administrative expenses

General and administrative expenses consist primarily of corporate support expenses such as legal and professional fees, investor relations and telecommunications expenses. For the three months ended September 30, 2014, general and administrative expenses increased by $264,650, or 58,811%, as compared to the three months ended September 30, 2013.  The increase was primarily attributable to professional services pertaining to getting current on the Company’s public filings.
 
Research and development expenses

Research and development expenses consist primarily of consulting fees paid to develop our software products.  Research and development expenses are expensed as they are incurred. For the three months ended September 30, 2014, research and development expenses increased by $516 as compared to the three months ended September 30, 2013.
 
Interest expense
 
For the three months ended September 30, 2014, interest expense decreased by $69,857, or 56%, as compared to the three months ended September 30, 2013.  The decrease was attributable to the conversion of debt into Series B and Series C Preferred Stock in during the third quarter of 2014.
 
Amortization of debt discount
 
For the three months ended September 30, 2014, amortization of debt discount decreased by $39,579, or 85%, as compared to the three months ended September 30, 2013.  The amortization of the debt discount on the November 2012 Notes accounted for the variance since the debt discount on the November 2012 Notes was almost fully amortized by the end of the first quarter of 2014. 
 
Amortization of deferred financing costs
 
For the three ended September 30, 2014, amortization of deferred financing costs decreased by $13,333 as compared to the three months ended September 30, 2013.  The decrease was attributable to the extinguishment of the November 2012 Notes in April 2014.
 
Change in fair value of derivative liabilities
 
For the three months ended September 30, 2014, change in fair value of derivative liabilities decreased $68,308, or 88%, as compared to the three months ended September 30, 2014.  During the third quarter of 2014, the gain was triggered by a small decrease in the Company’s estimated stock price due to liquidation preferences associated with the Series B and Series C Preferred Stock issuances.
 
Gain on settlement of accounts payable and accrued expenses
 
For the three months ended September 30, 2014, gain on settlement of accounts payable and accrued expenses increased by $706,737 as compared to the three months ended September 30, 2013.  During the third quarter of 2014, the Company settled several outstanding accounts payable balances with a combination of debt and equity securities.
 
Loss on extinguishment of debt
 
For the three months ended September 30, 2014, loss on extinguishment of debt increased by $2,265,365 as compared to the three months ended September 30, 2013.  The increase was attributable to the conversion of debt into Series B and Series C Preferred Stock during the third quarter of 2014.
 
 
 
 
 
 
- 17 -

 
 
 
 
Net loss
 
For the three months ended September 30, 2014, the net loss was $2,044,772 versus a net loss of $106,249 for the three months ended September 30, 2013.  The increase in the loss as compared to the prior year was primarily attributable to the conversion of debt into Series B and Series C Preferred Stock during the third quarter of 2014 and an increase in operating expenses as discussed above, partially offset by a gain on settlement of accounts payable and accrued expenses.
 
Nine months ended September 30, 2014 compared with Nine months ended September 30, 2013
 
Marketing and promotion expenses
 
Marketing and promotion expenses include costs related to the advertising, marketing, and promotion of our products.  For the nine months ended September 30, 2014, marketing and promotion expenses decreased by $3,814, or 32%, as compared to the nine months ended September 30, 2013.
 
Payroll and benefits
 
Payroll and benefits consist primarily of salaries and benefits to employees. For the nine months ended September 30, 2014, payroll and benefits increased by $88,879 or 35%, as compared to the nine months ended September 30, 2013. The increase resulted primarily as the Company depleted its cash reserves by the end of the first quarter of 2013, which caused the Company to suspend operations for approximately one year.  Due to the approximate $323,000 in cash received from New Bridge Notes during the second and third quarters of 2014, the Company was able to re-hire some of its former employees to resume operations on a limited basis.
 
General and administrative expenses
 
General and administrative expenses consist primarily of corporate support expenses such as legal and professional fees, investor relations and telecommunications expenses. For the nine months ended September 30, 2014, general and administrative expenses increased by $174,877, or 132%, as compared to the nine months ended September 30, 2013.  The increase was attributable to professional services pertaining to getting current on the Company’s public filings.
 
Research and development expenses
 
Research and development expenses consist primarily of consulting fees paid to develop our software products.  Research and development expenses are expensed as they are incurred. For the nine months ended September 30, 2014, research and development expenses decreased by $39,236, or 84%, as compared to the nine months ended September 30, 2013. The decrease resulted primarily as the Company depleted its cash reserves by the end of the first quarter of 2013, which caused the Company to suspend operations for approximately one year.  Although the Company received approximately $323,000 in cash from New Bridge Notes during the second and third quarters of 2014, the Company used the monies to resume operations and make changes to its capital structure, and did not have significant resources to dedicate to research and development.
 
Loss on write-off of capitalized software costs
 
For the nine months ended September 30, 2014, loss on write-off of capitalized software costs decreased by $68,560 as compared to the nine months ended September 30, 2013.  In the first half of 2013, the Company abandoned further development of its vSOS software platform since the Company depleted its cash reserves by the end of the first quarter of 2013.  Accordingly, during the nine months ended September 30, 2013, the Company wrote-off the entire cost of $68,560 as a loss on write-off of capitalized software costs.
 
 
 
 
 
 
- 18 -

 
 
 
 
Interest expense
 
For the nine months ended September 30, 2014, interest expense decreased by $67,449, or 40%, as compared to the nine months ended September 30, 2013.  The decrease was attributable to the conversion of debt into Series B and Series C Preferred Stock in during the second and third quarters of 2014.
 
Amortization of debt discount
 
For the nine months ended September 30, 2014, amortization of debt discount decreased by $130,122, or 69%, as compared to the nine months ended September 30, 2013.  Additional warrants issued during the fourth quarter of 2012 to extend note maturity dates through March 31, 2013 and amortized through March 31, 2013, as well as the amortization of the debt discount on the November 2012 Notes, accounted for the variance since the debt discount on the November 2012 Notes was almost fully amortized by the end of the first quarter of 2014. 
 
Amortization of deferred financing costs
 
For the nine months ended September 30, 2014, amortization of deferred financing costs decreased $25,505, or 64%, as compared to the nine months ended September 30, 2013.  The decrease was attributable to the extinguishment of the November 2012 Notes in April 2014.
 
Change in fair value of derivative liabilities
 
For the nine months ended September 30, 2014, change in fair value of derivative liabilities increased by $469,592, or 95%, as compared to the nine months ended September 30, 2013.  The increase in the gain resulted from the significant decrease in the Company’s estimated stock price during the nine months ended September 30, 2014 due to liquidation preferences associated with the Series B and Series C Preferred Stock issuances between June and September 2014.
 
Gain on settlement of accounts payable and accrued expenses
 
For the nine months ended September 30, 2014, gain on settlement of accounts payable increased by $677,487, or 100%, as compared to the nine months ended September 30, 2013.  During the second and third quarters of 2014, the Company settled several outstanding accounts payable and accrued expense balances with a combination of debt and equity securities.
 
Gain on settlement of accounts payable – related parties
 
For the nine months ended September 30, 2014, gain on settlement of accounts payable – related parties increased by $28,300 as compared to the nine months ended September 30, 2013.  During the second quarter of 2014, the Company settled outstanding payable balances with a related parties with a combination of equity securities.
 
Loss on extinguishment of debt
 
For the nine months ended September 30, 2014, loss on extinguishment of debt increased $4,308,623 as compared to the nine months ended September 30, 2013.  The increase was attributable to the extinguishment of the November 2012 Notes and the conversion of debt into Series B and Series C Preferred Stock during the second and third quarters of 2014.
 
Net Loss
 
For the nine months ended September 30, 2014, the net loss was $3,679,692 versus a net loss of $616,184 for the nine months ended September 30, 2013. The increase in the loss as compared to the prior year was primarily attributable to the losses on the extinguishment of both the November 2012 Notes and the conversion of debt into Series B and Series C Preferred Stock during the second quarter of 2014 and the increase in operating expenses as discussed above, partially offset by a gain on settlement of accounts payable and accrued expenses and a significant decrease in the value of the derivative liabilities.
 
Liquidity and Capital Resources
 
We measure our liquidity in a number of ways, including the following:
 
   
September 30, 2014
   
December 31, 2013
 
             
Cash
  $ 6,353     $ -  
Working Capital Deficiency
  $
(2,598,381
)   $ (7,533,918 )
Debt (Current)
  $
1,566,575
    $ 3,785,000  
 
 
 
 
 
 
 
- 19 -


 
 
 
Net Cash Used in Operating Activities
 
We experienced negative cash flow from operating activities for the nine months ended September 30, 2014 and 2013 in the amounts of $316,597 and $18,041, respectively. The cash used in operating activities during the nine months ended September 30, 2014 and 2013 was primarily due to cash used to fund operations of the Company and to become current on its public filings. The Company depleted its cash reserves by the end of the first quarter of 2013, which caused the Company to suspend operations for approximately one year.  Due to the approximate $323,000 in New Bridge Note funds received during the second and third quarters of 2014, the Company was able to resume operations on a limited basis.
 
Net Cash Provided by Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2014 and 2013 was $322,950 and $17,600, respectively.  The cash provided by financing activities for the nine months ended September 30, 2014 was attributable to the proceeds from the New Bridge Notes while the cash provided by financing activities for the nine months ended September 30, 2013 was attributable to related party advances.
 
Availability of Additional Funds

Based upon our working capital deficiency as of September 30, 2014 and the lack of any revenues, we require equity and/or debt financing to continue our operations. Subsequent to September 30, 2014, the Company secured additional debt financing in the form of Notes Payable resulting in gross proceeds of $311,249.  The Company expects that its current cash on hand will fund its operations only through May 2015. The Company is seeking to raise additional capital through private debt and equity investors. The Company needs to raise additional capital in order to be able to accomplish its business plan objectives. The Company is continuing its efforts to secure additional funds through debt or equity instruments due to the impending lack of funds. Management believes that it will be successful in obtaining additional financing based on its limited history of raising funds; however, no assurance can be provided that the Company will be able to do so. There is no assurance that any funds it raises will be sufficient to enable the Company to attain profitable operations or continue as a going concern. To the extent that the Company is unsuccessful, the Company may need to curtail or cease its operations and implement a plan to extend payables or reduce overhead until sufficient additional capital is raised to support further operations.
 
We may be unable to raise sufficient additional capital when we need it or to raise capital on favorable terms. Debt financing may require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness, and may contain other terms that are not favorable to our stockholders or us. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations or to obtain funds by entering into financing agreements on unattractive terms.
 
These matters raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements included elsewhere in this quarterly report have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport to represent realizable or settlement values. The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
 
Critical Accounting Policies and Estimates Use of Estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the consolidated financial statements and the reported amounts of revenue and expenses during the periods. Actual results could differ from these estimates. Our significant estimates and assumptions include amortization, the fair value of our stock, debt discount, warrant liabilities, and the valuation allowance relating to the Company’s deferred tax assets.
 
Off Balance Sheet Arrangements

As of September 30, 2014 and December 31, 2013, there were no off balance sheet arrangements.
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
 
 
 
 
 
 
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Disclosure Controls and Procedures
 
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation by the Company’s management, including the Company’s Chairman, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our management concluded that the Company’s disclosure controls and procedures were not effective at a reasonable assurance level such that the information relating to us and our consolidated subsidiary required to be disclosed in our Exchange Act reports (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure as of September 30, 2014.
 
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations of any control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
 
Internal Control Over Financial Reporting
 
We had identified certain matters that constituted a material weakness in our internal controls over financial reporting as of December 31, 2013 that continued to exist as of September 30, 2014; we also have identified additional weaknesses, both of which continued to exist as of September 30, 2014. Specifically:
 
l
As of September 30, 2014, the Company did not have a chief financial officer or a chief accounting officer. The Company did not have an internal accounting department and it relied on an outside accounting service to prepare financial statements and recording transactions. This is due to our limited financial resources and the small number of the Company’s employees. This therefore has resulted in the delay of recording and reporting certain transactions of the Company.
 
l
We did not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
 
l
We have limited segregation of duties within our accounting and financial reporting functions. Segregation of duties within our company is limited due to limited financial resources and the small number of employees that are assigned to positions that involve the processing of financial information.
 
l
We have also identified a material weakness relating to the valuation of certain complex financial instruments issued during the period.
 
We have taken steps to address this matter, including the retaining an outside accounting consulting firm to assist with the accounting reporting since May 2014. We believe that we have made some progress towards remediating this weakness; however, we must still complete the process of design specific control procedures and testing them for effectiveness before we can report that this weakness has been fully remediated. Although we believe that these steps have enabled us to improve our internal controls, additional time is still required to fully document our systems, implement control procedures and test their operating effectiveness before we can definitively conclude that we have remediated our material weakness.
 
Changes in Internal Controls
 
There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2014 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.
  
 
 
 
 
 
 
 
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PART II OTHER INFORMATION
 
 
We are not a party to any legal proceedings, nor are we aware of any threatened litigation.
 

During the third quarter of 2014, the Company entered into an amendment to a note subscription agreement with an investor.  The investor received 250,000 shares of Common Stock.

During the third quarter of 2014, the Company issued $164,000 in New Bridge to noteholders and Series A Preferred Stockholders who decided to invest at least 15% of their original investments in the New Bridge Notes.  The investors of such New Bridge Notes received 455,558 warrants.

During the third quarter of 2014, the Company reached a settlement agreement with a consultant on outstanding accounts payable by issuing a $125,000 convertible New Bridge Note and a warrant to purchase 347,222 shares of Common Stock.

During the third quarter of 2014, the Company reached a settlement agreement with its former Chief Executive Officer and current Chairman of the Board of Directors on outstanding accounts payable and accrued expenses by issuing 423,789 shares of Common Stock.
 
During the third quarter of 2014, the Company reached settlement agreements with former employees and consultants on outstanding accounts payable and accrued expenses by issuing 726,670 shares of Common Stock.
 
During the third quarter of 2014, certain investors of the notes which were sold previously during February 2010 through December 2011 signed a waiver and amendment agreement to convert their convertible promissory notes and accrued interest into Series B Preferred Stock.  The investors received 207,125 shares of Series B Preferred Stock.

During the third quarter of 2014, certain investors of the notes which were sold previously during February 2010 through December 2011 signed a waiver and amendment agreement to convert their convertible promissory notes and accrued interest into Series C Preferred Stock and to invest at least 15% of their original investment in a New Bridge Note.  The investors received 942,941 shares of Series C Preferred Stock and 625,000 shares of Common Stock.

During the third quarter of 2014, an investor signed a waiver and amendment agreement to convert his notes payable and accrued interest into Series B Preferred Stock. The investor received 141,311 shares of Series B Preferred Stock.
 
During the third quarter of 2014, certain investors signed a waiver and amendment agreement to convert their notes payable and accrued interest into Series C Preferred Stock and to invest at least 15% of their original investment in a New Bridge Note.  The investors received 86,685 shares of Series C Preferred Stock and 350,000 shares of Common Stock.

During the third quarter of 2014, investors signed a waiver and amendment agreement to convert shares of Series A Preferred Stock into shares of Series B Preferred Stock at a ratio of 8.3333 to 1. The investors exchanged 308,334 shares of Series A Preferred Stock for 37,001 shares of Series B Preferred Stock.

During the third quarter of 2014, investors signed a waiver and amendment agreement to convert shares of Series A Preferred Stock into shares of Series C Preferred Stock at a ratio of 6.15384 to 1 and to invest at least 15% of their original investment in a New Bridge Note. The investors exchanged 250,000 shares of Series A Preferred Stock for 40,625 shares of Series C Preferred Stock.

During the fourth quarter of 2014, the Company reach a settlement agreement with a consultant on outstanding accounts payable by issuing a $35,460 convertible New Bridge Note and a warrant to purchase 98,500 shares of Common Stock.

During the fourth quarter of 2014, the Company issued unsecured loans totaling $157,249.

 
 
 
 
 
- 22 -


 
 
 
 
 
During the first quarter of 2015, the Company issued unsecured loans totaling $154,000.

During the first quarter of 2015, the Company entered into an amendment to a note subscription agreement with an investor. The investor received 125,000 shares of Common Stock.

The above issuances of the Company’s securities were not registered under the Securities Act of 1933, as amended (the “1933 Act”), and the Company relied on an exemption from registration provided by Section 4(a) (2) and Rule 506(b)  under the 1933 Act for such issuance.

Except as disclosed above, all unregistered sales of the Company’s securities have been disclosed on the Company’s current reports on Form 8-K and the Company’s quarterly reports on Form 10-Q.
 
 
Not applicable.
 
 
(a)   Exhibits
 
*    Users of this data are advised pursuant to Rule 406T of Regulation S-X that this interactive data file is deemed not filed or part of a registration statement or prospectus for the purpose of section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
 
 

 
 
 
 
 
- 23 -

 
 
 
 
 
 
Pursuant to the requirements of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.
 
 
NUVEL HOLDINGS, INC.
   
   
   
     
Date: May 4, 2015
By:
 /s/  Jay Elliot                                                                                      
   
       Jay Elliot
   
       Chairman of the Board of Directors
   
       (principal executive officer and principal financial
       and accounting officer)
     
 

 
 
Date: May 4, 2015
By:
 /s/  Richard Resnick                                                                         
   
       Richard Resnick
   
       Acting Chief Executive Officer
   
       (principal executive officer and principal financial
       and accounting officer)
 
 
 
 
 
 
 
 

 
 
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