Convertible Notes Payable
|9 Months Ended|
Sep. 30, 2016
|Notes Payable and Convertible Notes Payable [Abstract]|
|CONVERTIBLE NOTES PAYABLE||
NOTE 8 – CONVERTIBLE NOTES PAYABLE
The Company issued convertible notes payable. The outstanding balance and any accrued interest is due on maturity date or when the cash is available to repay the notes payable. Under the agreement, the notes 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:
The convertible notes 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. The Company incurred $1,683 and $0 of interest expense for the quarter (3 months) ended September 30, 2016 and 2015. No convertible notes were converted as of September 30, 2016 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 September 30, 2016:
As a result of initial recording of derivative liability of $41,000 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 recorded additional debt discount of $10,500 in June 2015 to true up the debt discount balance. The original debt discount amount of $30,500 should have been recorded as $41,000. The Company accretes debt discount of $41,000 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 $5,483 and $0 for the three months ended on September 30, 2016 and 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, 2015:
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 entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef