NOTE 6 – CONVERTIBLE NOTE PAYABLE

On October 2, 2014, the Company issued a convertible note payable with an interest rate of 5.0% per annum in the amount of $100,000. The outstanding balance and any accrued interest is due on December 31, 2015. 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.

On June 10, 2015, the Company issued a convertible note payable with an interest rate of 8.0% per annum in the amount of $28,000. The outstanding balance and any accrued interest is due on March 13, 2016. Under the agreement, the note can be convertible at the holder’s discretion into common shares of the Company’s stock at the date of exercise using three days lowest stock price average times 61 percent discount.

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 June 30, 2015

In 2014, 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 quarter ended June 30, 2015 which is recorded as interest expense.

In 2015, as a result of initial recording of derivative liability of $20,000 with proceeds of $28,000 the Company recorded debt discount of $20,000 at the date of issuance of convertible note payable.

The Company accretes debt discount of $20,000 over the life of the convertible note. The Company recorded accretion of $1,555 for the quarter ended June 30, 2015 which is recorded as interest expense.

Interest incurred for the three month ended on June 30, 2015 was $1,332 (excluding debt discount accretion of $19,138 which is also recorded as interest expense).