Quarterly report pursuant to Section 13 or 15(d)

Convertible Note Payable

v3.8.0.1
Convertible Note Payable
6 Months Ended
Jun. 30, 2017
Debt Disclosure [Abstract]  
Convertible Note Payable

NOTE 7 – CONVERTIBLE NOTE PAYABLE

 

Effective March 30, 2017, the Company issued a 6.5% convertible promissory note for an aggregate of $2,777,778 due April 30, 2018 for consideration of $2,500,000, after original interest discount (“OID) of $277,778; unsecured.

 

At June 30, 2017, the Company had received net proceeds of $99,965 under the note. Gross face amount was $111,111, after additions for pro rate portion of OID and other related costs.

 

The note is convertible, at any time, into shares of the Company’s common stock at $0.03 per share unless on the day prior to the lender’s request to convert, the closing price is less than $0.05 per share, then the conversion price shall be 60% of the average three lowest days closing prices for 20 trading days prior to the request to convert.

 

The Company has identified the embedded derivatives related to the above described note. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the note and to fair value as of each subsequent reporting date. 

 

At the funding date of the debenture, the Company determined the aggregate fair value of $221,406 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 470.85%, (3) weighted average risk-free interest rate of 1.02%, (4) expected life of 1.08 years, and (5) estimated fair value of the Company's common stock from $0.0604 per share. 

 

The determined fair value of the debt derivatives of $221,406 was charged as a debt discount up to the net proceeds of the note with the remainder of $121,441 charged to operations as non-cash interest expense. 

 

At June 30, 2017, the Company determined the aggregate fair value of $191,438 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 449.09%, (3) weighted average risk-free interest rate of 1.24%, (4) expected life of 0.83 years, and (5) estimated fair value of the Company's common stock from $0.0205 per share.

 

For the three and six months ended June 30, 2017, the Company recorded a gain on change in fair value of derivative liabilities of $10,079 and $29,968 and recorded amortization of debt discounts of $25,533 and $25,814, respectively as a charge to interest expense, respectively.