Annual report pursuant to Section 13 and 15(d)

Convertible Notes Payable

v3.3.1.900
Convertible Notes Payable
12 Months Ended
Dec. 31, 2015
Notes Payable and Convertible Notes Payable [Abstract]  
CONVERTIBLE NOTES PAYABLE

NOTE 8 – CONVERTIBLE NOTES PAYABLE

 

The Company issued convertible notes payable in 2015 and 2014. The outstanding balance and any accrued interest is due on maturity date. Under the agreement, the note can be convertible at the holder’s discretion into common shares of the Company’s stock at a 25% discount to the price at the date of exercise.

 

The Company’s convertible notes payable is as follows:

 

Convertible Note   Issuance Date   Maturity Date   Interest Rate     Original Borrowing     Balance at December 31, 2015  
                                 
Note 1   October 2, 2014   December 31, 2015     5.0 %   $ 100,000     $ 100,000  
Note 2   June 10, 2015   March 13, 2016     8.0 %   $ 28,000       -  
Note 3   December 23, 2015   September 23, 2016     8.0 %     21,000       21,000  
                                 
Total                           121,000  
                                 
Debt Discount                     (9,333 )
                                 
Net balance                       $ 111,667  

 

The convertible note with the maturity date that has matured at the time the financial statements are issued continued to accrue interest and no default penalties were incurred. No convertible notes were converted as of December 31, 2015 and up to the date the financial statements are issued.

 

The Company adopted the provisions of FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”) (previously EITF 07-5, “Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock”), as the convertible note agreement contained certain provision that the convertible note failed to pass the “fixed for fixed” criteria of ASC815, the conversion feature of the convertible debt should have to be bifurcated and recorded separately until the conversion date.

 

Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and full-ratchet provision which the Company valued the embedded derivative using the Black-Scholes method. The following table represents fair value of embedded derivative movement from the date of issuance to December 31, 2015:

 

Embedded Derivative Liabilities

  Fair Value at Date of Issuance     Changes in Fair Value  2015     Fair Value at December 31, 2015  
                   
Note 1 – Issued in 2014   $ 70,334     $ 5,856     $ 76,190  
Note 2 – Issued in 2015   $ 20,000       (20,000 )     -  
Note 3 – Issued in 2015   $ 10,500       21,000       31,500  
                         
Total           $ 6,856     $ 107,690  

 

As a result of initial recording of derivative liability of $30,500 for convertible notes issued in 2015 with proceeds of $49,000 the Company recorded debt discount of $30,500 at the date of issuance of convertible note payable for issuances occurred in 2015. The Company accretes debt discount of $30,500 for convertible notes issued in 2015 and $70,334 for convertible note issued in 2014 over the life of the convertible note. The Company recorded accretion of $91,500 for the year ended December 31, 2015 which is recorded as interest expense.

 

The following table represents fair value of embedded derivative movement from the date of issuance to December 31, 2014:

 

Description   Fair Value at Date of Issuance     Changes in Fair Value 
2014
    Fair Value at December 31, 2014  
                         

Embedded derivative liabilities

  $ 70,334     $ -     $ 70,334  

 

As a result of initial recording of derivative liability of $70,334 with proceeds of $100,000 the Company recorded debt discount of $70,334 at the date of issuance of convertible note payable. The Company accretes debt discount of $70,334 over the life of the convertible note which is 12 months. The Company recorded accretion of $17,583 for the year ended December 31, 2014 which is recorded as interest expense.

 

Interest incurred for the year ended December 31, 2014 was $1,251 (excluding debt discount accretion of $17,583 which is also recorded as interest expense).