Quarterly report pursuant to Section 13 or 15(d)

Notes Payable

v3.7.0.1
Notes Payable
 3 Months Ended
Mar. 31, 2017
Debt Disclosure [Abstract]  
Notes Payable

4. NOTES PAYABLE

 

The Company has the following notes payable as of March 31, 2017 and December 31, 2016:

 

Note   Note Date   Maturity Date   Interest Rate     Original Borrowing     Balance at
March 31, 2017 		    Balance at
December 31, 2016 		 
                                 
Note payable (a)   March 21, 2015   March 20, 2018     12 %   $ 125,000     $ 125,000     $ 125,000  
Note payable (b)   December 15, 2016   June 15, 2017     5 %   $ 101,300       101,300       101,300  
Total notes payable                             226,300       125,000  
Debt discount                             (22,407 )     (48,942  
                                         
Total notes payable, net of debt discount               $ 203,893     $ 177,358  

 

(a) March 21, 2015 – The Company entered into an agreement with DelMorgan Group LLC (“DelMorgan”), pursuant to which DelMorgan agreed to act as the Company’s exclusive financial advisor. In connection with the agreement, the Company paid DelMorgan $125,000, which was advanced by a third-party lender in exchange for an unsecured note payable issued by the Company bearing interest at the rate of 12% per annum payable monthly beginning on April 20, 2015.
   
  Effective March 20, 2017, the Company entered into an extension agreement (the “Extension Agreement”) with DelMorgan to extend the maturity date of the Note to and including March 20, 2018. All other terms of the Note remain unchanged.

 

(b) On December 15, 2016, the Company entered into an agreement with a buyer, whereby the Company agreed to issue and sell to the Buyer, and the Buyer agreed to purchase from the Company, (i) a non-interest bearing Note in the original principal amount of $250,000, (ii) Warrants, and (iii) shares of the Company’s common stock in an amount equal to 30% of the purchase price of the respective tranche divided by the closing price of the Common Stock on the trading day immediately prior to the date of funding of the respective tranche (collectively, the “Inducement Shares”). The “Maturity Date” shall be six months from the date of each payment of Consideration. A one-time interest charge of five percent (5%) (“Interest Rate”) is to be applied on the Issuance Date to the original principal amount. In addition, there is a 10% Original Issue Discount that is to be prorated based on the consideration paid by the Buyer.

 

 On December 16, 2016, the Buyer purchased for $80,000 the first tranche of the Note and the respective securities to be issued and the Company sold to it including (i) a three-year warrant to acquire 176,000 shares of the Company’s common stock with an exercise price of $0.25 per share, and (ii) 240,000 shares of the Company’s common stock.

 

Upon issuance of the note, the company accounted for an original issue discount of $21,300, which consisted of (i) the 10% original issue discount of $8,800, and (ii) the fixed interest of 5% which aggregated $12,500 (such rate based on the entire funding due of $250,000). The original issue discount will be accreted to interest expense over the life of the note, resulting in a net amount due the holder of $101,300 at maturity. In addition, the (iii) the fair value of the 240,000 common shares of $21,600 issued to the holder, and (iv) the relative fair value of the warrants of $32,059 was considered as additional valuation discount and will be amortized as interest expense over the life of the note.

 

The aggregate fair value of the original issue discount and the equity securities issued upon inception of the note of $53,659 has been recorded as a valuation discount. The balance of the valuation discount at December 31, 2016 was $48,942. During the three months ended March 31, 2017, $26,535 of this amount was amortized as interest expense, and the remaining unamortized discount was $22,407 as of March 31, 2017.

 

Upon the occurrence of an event of default, the Holder shall have the right, but not the obligation, to convert the Outstanding Balance into shares of the Company’s Common Stock, the “conversion price” shall equal 70% of the average volume weighted average price for the twenty trading days immediately preceding the applicable conversion date. The Company did not account for the conversion feature of the note as it is a contingent event that is payable only upon default of the note. It is the Company’s current intention to pay the note off before maturity with either from the funds raised subsequent to year end, or through an additional amount advanced by the majority shareholder.

 

Total interest expense for notes payable for the three months ended March 31, 2017 and 2016 was $3,750 and $3,750, respectively.