Discount Coupons Corp

The 897,000 shares of common stock and the 3,307,856 warrants issued to investors in connection with the above notes were accounted for as prepaid interest expense under the guidance of ASC 820-15-20. For the $348,500 in principal that was converted immediately after being issued, the $542,427 in related prepaid interest was charged to interest expense upon conversion. The $40,000 in prepaid interest related to the $15,000 note that was not converted was amortized over the life of the note, which matured on June 1, 2014. As of September 30, 2014, all prepaid interest was fully amortized.

During the year ended December 31, 2013, the Company issued 359,100 warrants in conjunction with short-term notes described in Note 6 and 30,000 warrants for consulting services  during the year ended December 31, 2013. In addition, we have 992,740 warrants outstanding that were issued in 2012 and prior years. During the nine months ended September 30, 2014, 3,307,856 warrants were issued in connection with a note purchase agreement, which is described in Note 7. Additionally, during the nine months ended September 30, 2014, the Company issued 1,342,105 warrants to consultants in lieu of $51,000 in future services. The $51,000 in future services is recorded in prepaid expenses. No warrants were exercised during the nine months ended September 30, 2014 or the year ended December 31, 2013. All of the warrants are currently exercisable and are accounted for as equity instruments. The following table summarizes the warrants outstanding at September 30, 2014: 

Interest expense for the nine months ended September 30, 2014 and 2013 was $807,809 and $257,895, respectively, representing an $549,914 increase. The increase in interest expense is primarily attributable to the amortization of deferred finance fees and debt discount associated with the new issuances of debt. For the nine months ended September 30, 2014, the Company recorded an inducement expense in the amount of $49,370. Additionally, for the nine months ended September 30, 2014 the Company recorded a gain related to the forgiveness of interest in the amount of $6,637. For the nine months ended September 30, 2013, the Company recorded a loss on extinguishment of debt in the amount of $662,958. Additionally, for the nine months ended September 30, 2013 the Company recorded a gain related to the forgiveness of interest in the amount of $76,419.

Compensation cost relating to share based payment transactions be recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).

The Company has not established adequate financial reporting monitoring activities to mitigate the risk of management override, specifically because there are few employees and only one officer with management functions there is lack of segregation of duties. The Company intends to continue to evaluate potentially engaging additional management personnel to alleviate this weakness.