| CONVERTIBLE PROMISSORY NOTES | 4. CONVERTIBLE PROMISSORY NOTES During the year ended December 31, 2015, the Company entered into convertible promissory note agreements (the “Agreements”) with certain investors (referred to as the "the Holders" or “Mini Investors”), whereby the Company issued Convertible Notes (the “Convertible Notes" or “Notes”) in various principal amounts. The notes would bear an interest rate of 10% per annum. Under the convertible note agreements, the lender had the right to convert all or any part of the outstanding and unpaid principal and interest into shares of the Company’s common stock; provided however, that in no event shall the lender be entitled to convert any portion of the notes that would result in the beneficial ownership by it and its affiliates to be more than 9.99% of the outstanding shares of the Company's common stock. The lender exercised this right on September 30, 2016. The key terms/features of the Mini Investors Convertible Notes were as follows:
1. The Holders had the right from and after the date of issuance, and until any time the Notes are fully paid, to convert any outstanding and unpaid principal portion of the Notes, and accrued interest (10% rate), into fully paid and non–assessable shares of Common Stock (par value $.0001).
2. The Notes were convertible at a fixed conversion price of $0.50 or upon default, the lessor of fixed conversion price $0.25 and 100% of 10 trading day low VWAP (default condition).
3. Beneficial ownership is limited to 4.99% initially and upon the Holders request to 9.99%.
4. The Notes could be prepaid in whole or in part, at any time during the period beginning on the issue date and ending on the date which is maturity, beginning at 100% of the outstanding principal, accrued interest and certain other amounts that may be due and owing under the Notes.
5. In the event of default the Convertible Notes would bear interest at 10% per annum and a 0% penalty rate. These Convertible Notes, together with interest accrued on these notes, were converted into 633,332 shares of the Company on September 30, 2016. Outstanding convertible promissory notes as at September 30, 2016 and December 31, 2015 were as follows:
Promissory notes issued during 2015 $ 95,000
Discount recognized due to embedded derivatives (2,467 )
Accretion on notes 36
Accreted value of notes as at December 31, 2015 92,569
Accretion on notes during period ended September 30, 2016 2,431
Notes converted during period ended September 30, 2016 (95,000 )
Accreted value of notes as at September 30, 2016 - The embedded conversion features and reset feature in the notes were accounted for as a derivative liability based on FASB guidance (also refer note 5). The details of the convertible promissory notes issued are as follows:
Issue date Maturity date
Note amount $ Interest rate per annum Conversion rate
December 8, 2015 May 8, 2017 25,000 10 % Fixed conversion price $0.50; or lessor of fixed conversion price $0.25 and 100% of 10 TD low VWAP (default condition)
December 30, 2015 May 31, 2017 70,000 10 % Fixed conversion price $0.50; or lessor of fixed conversion price $0.25 and 100% of 10 TD low VWAP (default condition)
95,000 Interest expense for the Nine-month period ended September 30, 2016 recognized on these convertible promissory notes amounts to $7,131 included in interest and bank charges in the statements of operations. The interest payable was also converted, together with the principal, into shares of the Company on September 30, 2016. |
