| Convertible Note Payable |
| 6. |
CONVERTIBLE NOTE PAYABLE |
The Company has the following
notes payable as of June 30, 2017 and December 31, 2016:
| Note |
|
Note Date |
|
Maturity Date |
|
Interest Rate |
|
|
Original Borrowing |
|
|
Balance at
June 30, 2017
|
|
|
Balance at
December 31, 2016
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
| Note payable (a) |
|
Various |
|
August 4, 2017 |
|
|
12 |
% |
|
$ |
600,000 |
|
|
$ |
680,268 |
|
|
$ |
680,268 |
|
| Note payable (b) |
|
June 19, 2017 |
|
February 19, 2018 |
|
|
5 |
% |
|
$ |
110,000 |
|
|
|
110,000 |
|
|
|
- |
|
| Total notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
790,268 |
|
|
|
680,268 |
|
| Debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105,061 |
) |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total notes payable, net of debt discount |
|
|
|
|
|
|
|
|
|
$ |
685,207 |
|
|
$ |
680,268 |
|
| (a) |
The Company entered into a series of unsecured loan agreement with Oceanside Strategies, Inc. (“Oceanside”) a third party-lender, in the aggregate principal amount of $600,000 through December 31, 2015. The loans bear interest at rates ranging from 5% to 12% per annum and were due on demand. |
| |
|
| |
On April 3, 2016, the Company issued an unsecured convertible note payable to Oceanside in the amount of $680,268 (this amount includes $600,000 principal amount and $80,268 accrued and unpaid interest). This note superseded and replaced all previous notes and current liabilities due to Oceanside for sums Oceanside loaned to the Company in 2014 and 2015. This note bears interest at the rate of 12% per annum, compounded annually. In consideration for Oceanside’s agreement to convert the prior notes from current demand notes and extend the maturity date to December 4, 2016, the Company granted Oceanside the right to convert up to 30% of the amount of such note into shares of the Company’s common stock at $0.07 per share and issued 2,429,530 share purchase warrants, exercisable at $0.07 per share until April 4, 2019. |
| |
|
| |
Effective December 30, 2016, the Company entered into an extension agreement (the “Extension Agreement”) with Oceanside to extend the maturity date of the Note to and including August 4, 2017. All other terms of the Note remain unchanged. In consideration for Oceanside’s agreement to extend the maturity date to August 4, 2017, the Company issued Oceanside 2,429,530 share purchase warrants, exercisable at $0.08 per share until December 29, 2019. |
| |
|
| (b) |
On June 19, 2017, the Company issued an unsecured convertible note to Lucas Holdings in the amount of $100,000 in exchange for 50,000 shares of common stock and a three-year warrant to acquire 330,000 shares of the Company’s common stock with an exercise price of $.30 per share. The “Maturity Date” is February 18, 2018. 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 5% Original Issue Discount. |
| |
|
| |
Upon issuance of the note, the company accounted for an original issue discount of $10,000 which consisted of (i) the 5% original issue discount of $5,000, and (ii) the fixed interest of 5% which aggregated $5,000. The original issue discount of $10,000 has been added to the note balance and will be accreted to interest expense over the life of the note, resulting in a net amount due the holder of $110,000 at maturity. In addition, the (iii) the fair value of the 50,000 common shares of $12,500 issued to the holder, (iv) the relative fair value of the warrants of $40,180, and (v) a beneficial conversion feature of $47,320 were 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 $110,000 has been recorded as a valuation discount. As of June 30, 2017, $4,939 of this amount was amortized as interest expense, resulting in an unamortized balance of $105,061 at June 30, 2017. |
| |
|
| |
Total
interest expense for convertible notes payable for the six months ended June 30, 2017 and 2016 was $40,481 and $40,704, respectively.
Total interest expense for convertible notes payable for the three months ended June 30, 2017 and 2016 was $20,352 and $20,352,
respectively. |
|