| Convertible Notes Payable | Some of the Convertible
Notes issued as described below included an anti-dilution provision that allowed for the adjustment of the conversion price. The
Company considered the guidance provided by the FASB in “ Determining Whether an Instrument Indexed to an Entity’s
Own Stock Convertible notes at June 30, 2017
and December 31, 2016 are summarized as follows:
June
30, 2017 December
31, 2016
Convertible Notes Payable – Unrelated Party $ 719,647 $ 179,285
Convertible Notes Payable – Related Party 165,000 165,000
Discount on notes (313,194 ) (21,833 )
Total - Current $ 571,453 $ 322,452 Convertible Notes Payable –
Unrelated Party On April
17, 2014, the Company entered into an unsecured Convertible Note (“Note 4”) in the amount of $9,000. Note 4 was convertible
into Common Shares of the Company at $0.005 per share at the option of the holder. Note 4 bore interest at eight percent per year,
matured on June 17, 2014, and was unsecured. All principal and unpaid accrued interest was due at maturity. The Company is currently
in default on Note 4. On August 17, 2015, a portion of principal of $1,500 was converted into 300,000 shares of Common Stock of
the Company upon the request of the holder. During the year ended December 31, 2016, the note holder converted $3,715 principal
and $1,310 accrued interest payable into 1,005,000 shares of common stock at a conversion price of $0.005 per share. And $3,000
of principal is forgiven by the note holder. In addition, the Company agreed to reimburse the holder’s certificate processing
cost by adding $1,000 to the principal for each note conversion pursuant to an addendum, dated February 3, 2016. During the first
quarter of 2017, the note holder converted $2,785 principal, $1,000 processing cost reimbursement and $102 accrued interest into
777,400 shares of common stock at a conversion price of $0.005 per share. The balance of Note 4 was $2,785 as of December 31,
2016, which was paid in full as of June 30, 2017. Accordingly,
Note 5 has been evaluated with respect to the terms and conditions of the conversion features contained in Note 5 to determine
whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined
that the conversion features contained in Note 5 for $12,200 carrying value represents a freestanding derivative instrument that
meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument
in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument
of the convertible note was measured using the Black-Scholes valuation model at the inception date of Note 5 and will do so again
on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating,
non-cash income or expense at each balance sheet date. On March 8, 2016, the Company entered into an addendum to Note 5 to change
the conversion price to $0.005 per share. As a result, the embedded derivative liability of $12,217 at March 8, 2016 was reclassified
as additional paid-in capital. The table below
sets forth the assumptions for Black-Scholes valuation model on May 6, 2015 (inception) and December 31, 2015, and March 8, 2016,
respectively. For the three months ended March 31, 2016, the Company decreased the derivative liability of $13,948 at December
31, 2015 by $1,731, resulting in a derivative liability of $12,217 at March 8, 2016.
Reporting Date Fair
Value Term
(Years) Assumed
Conversion Price Market Price on Issuance Date Volatility Percentage Risk-free Rate
5/6/2015 $22,495
0.33 $0.83
$1.69
507% 0.0002
12/31/2015 $13,948
0.003 $0.04
$0.08
533% 0.0014
3/8/2016 $12,217 0.003 $0.03
$0.05
569% 0.0027 As of June
30, 2017 and December 31, 2016, the balance of Note 5 was $0. On July 29, 2015,
the Company entered into an 8% convertible promissory note (“Note 6”) with an unrelated entity in the amount of $10,000.
Note 6 bore interest at eight percent per year, matured on November 26, 2015, and was unsecured. Note 6 was convertible into Common
Shares of the Company at the conversion ratio of 50% discount to market at the conversion date. However, if the closing bid price
of the Company’s Common Shares falls below $0.10 per share, the conversion price will be changed to $0.01 per share and
remain intact from that point forward. Since the Company’s common stock was $0.075 per share at December 31, 2015, the conversion
feature contained in Note 6 no longer meets the requirements for liability classification under ASC 815. As a result, the embedded
derivative liability of $10,008 at December 31, 2015 was reclassified as additional paid-in capital. The table below
sets forth the assumptions for Black-Scholes valuation model on July 29, 2015 (inception) and December 31, 2015, respectively.
For the period ended December 31, 2015, the Company had initial loss of $8,041 due to derivative liabilities, and decreased the
derivative liability of $18,041 by $8,033, resulting in a derivative liability of $10,008 at December 31, 2015. The derivative
liabilities is reclassified as additional paid in capital due to the conversion price become fixed price as of January 1, 2016.
Reporting Date Fair
Value Term (Years) Assumed Conversion Price Market
Price on Issuance Date Volatility Percentage Risk-free Rate
7/29/2015 $18,041 0.33 $0.30 $0.60 513% 0.0006
12/31/2015 $10,008 0.003 $0.038 $0.075 533% 0.0014 Note 6 and accrued
interest totaled $11,666 was paid in full by cash on May 1, 2017. Resulting from the tainted issue by the derivative financial
instrument of the convertible notes, the Company determined that the conversion features contained in Note 6 carrying value represents
a freestanding derivative instrument that meets the requirements for liability classification under ASC 815. As a result, the
fair value of the derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability,
which will be reclassified into additional paid in capital upon conversion. The fair value of the derivative financial instrument
of the convertible note was measured using the Binomial-Lattice valuation model with assumptions set forth in the table below
and the fair value of $95,001 was credited to additional paid in capital on the conversion date.
Reporting Date Fair Value Term (Years) Assumed Conversion Price Market
Price on Issuance Date Volatility Percentage Risk-free
Rate
5/1/2017 $
95,001 0.50 $0.01 $0.1050 111% 0.0098 On February 9,
2016, the Company entered into a 15% convertible line of credit (“Note 7”) with an unrelated entity in the amount
up to $50,000. On February 9, 2016, the Company received $17,500 cash for the line of credit, matured on February 9, 2017, and
unsecured. Note 7 is convertible into common shares of the Company at the conversion ratio of $0.03 or 50% discount of the lowest
closing price on the primary trading market on which Company's common stock is quoted for the last five trading days prior to
the conversion date, whichever is lower. The Company determined that the conversion features contained in Note 7 carrying value
represents a freestanding derivative instrument that meets the requirements for liability classification under ASC 815. As a result,
the fair value of the derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability.
The fair value of the derivative financial instrument of the convertible note was measured using the Binomial-Lattice valuation
model at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value
of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.
The derivative liabilities will be reclassified into additional paid in capital upon conversion. The table below
sets forth the assumptions for Binomial-Lattice valuation model on December 31, 2016 and June 30, 2017, respectively.
Reporting Date Fair Value Term (Years) Assumed Conversion Price Market
Price on Issuance Date Volatility Percentage Risk-free
Rate
12/31/2016 $
74,750 0.11 $0.03 $0.2250 221% 0.0062
6/30/2017 $
19,129 0.10 $0.03 $0.0799 111% 0.0114 Note 7 is
currently in default and principal of $6,000 was converted into 200,000 shares of common stock at the end of 2016. During the
six months ended June 30, 2017, the Company recorded interest expense, late fee and default interest related to Note 7 in total
amount of $2,029 and amortization of debt discounts in amount of $3,500. The balance of Note 7 was $11,500 with unamortized debt
discount of $3,500 as of December 31, 2016, and $11,500 without unamortized debt discount as of June 30, 2017. On October 28,
2016, the Company received $25,000 cash pursuant to the terms of Note 7, matured on October 28, 2017 (“Note 7-1”).
Note 7-1 was entitled to conversion after April 28, 2017 which met the requirements for liability classification under ASC 815. The table below
sets forth the assumptions for Binomial-Lattice valuation model on June 30, 2017.
Reporting
Date Fair
Value Term (Years) Assumed
Conversion Price Market
Price on Issuance Date Volatility
Percentage Risk-free Rate
6/30/2017 $
41,586 0.33 $0.03 $0.0799 111% 0.0114 During the
six months ended June 30, 2017, the Company recorded interest expense related to Note 7-1 in amount of $1,344 and amortization
of debt discount in amount of $8,750. This resulted in an unamortized debt discount of $16,250 as of June 30, 2017. The balance
of Note 7-1 was $25,000 as of June 30, 2017 and December 31, 2016, respectively. On March 8, 2016,
the Company entered into a 15% convertible promissory note in the principal of $50,000 (“Note 8”) with an unrelated
entity for services rendered. Note 8 is matured on March 8, 2017, and unsecured. This Note is convertible into common shares of
the Company at the conversion ratio of $0.03 or 50% discount of the lowest closing price on the primary trading market on which
Company's common stock is quoted for the last five trading days prior to the conversion date, whichever is lower. The Company
determined that the conversion features contained in Note 8 carrying value represents a freestanding derivative instrument that
meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument
in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument
of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do
so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded
as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into
additional paid in capital upon conversion. On February 16,
2017, a portion of principal of $6,000 was converted into 200,000 shares of common stock at a conversion price of $0.03 per share. On April 13,
2017, a portion of principal of $12,853, including $1,000 conversion cost reimbursement, plus accrued interest of $12,247 were
converted into 836,667 shares of common stock at a conversion price of $0.03 per share. On May 4, 2017,
a portion of principal of $6,000, including $2,000 conversion cost reimbursement, plus accrued interest of $70 were converted
into 202,333 shares of common stock at a conversion price of $0.03 per share. The table below
sets forth the assumptions for Binomial-Lattice valuation model on December 31, 2016, February 16, 2017, April 13, 2017, May 4,
2017 and June 30, 2017, respectively.
Reporting
Date Fair Value Term
(Years) Assumed Conversion Price Market
Price on Issuance Date Volatility
Percentage Risk-free
Rate
12/31/2016 $
325,001 0.18 $0.03 $0.2250 221% 0.0062
2/16/2017 $
62,000 0.05 $0.03 $0.3400 173% 0.0051
4/13/2017 $
53,554 0.10 $0.03 $0.1550 111% 0.0076
5/4/2017 $
18,000 0.16 $0.03 $0.1200 111% 0.0071
6/30/2017 $
46,819 0.10 $0.03 $0.0799 111% 0.0114 Note 8 was
in default with principal balance of $28,147 as of June 30, 2017. During the six months ended June 30, 2017, the Company recorded
late fee and default interest related to Note 8 in total amount of $8,177 and amortization of debt discounts in amount of $18,333.
The balance of Note 8 was $50,000 with unamortized debt discount of $18,333 as of December 31, 2016, and $28,147 without unamortized
debt discount as of June 30, 2017. The fair value of total $133,554 was credited to additional paid in capital on the conversion
dates. On September
12, 2016, the Company entered into a 10% convertible promissory note in the principal of $80,000 (“Note 9”) with an
unrelated entity for services rendered. Note 9 is matured on September 12, 2017, and unsecured. This Note is convertible into
common shares of the Company at the conversion ratio of $0.03 or 50% discount of the lowest closing bid price on the primary trading
market on which Company's common stock is quoted for the last five trading days prior to the conversion date, whichever is lower.
The Company determined that the conversion features contained in Note 9 carrying value represents a freestanding derivative instrument
that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial
instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial
instrument of the convertible note was measured using the Binomial-Lattice valuation model at the inception date of the note and
will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments
are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified
into additional paid in capital upon conversion. The table below
sets forth the assumptions for Binomial-Lattice valuation model on June 30, 2017.
Reporting Date Fair
Value Term (Years) Assumed
Conversion Price Market
Price on Issuance Date Volatility Percentage Risk-free Rate
6/30/2017 $
133,071 0.20 $0.03 $0.0799 111% 0.0114 As a result,
Note 9 was discounted in the amount of $80,000 and amortized over the remaining life of this Note. During the six months ended
June 30, 2017, the Company recorded interest expenses related to Note 9 in amount of $4,000 and amortization of debt discounts
in amount of $48,889. The balance of Note 9 was $80,000 without unamortized debt discount as of December 31, 2016, and $80,000
with unamortized debt discount of $31,111 as of June 30, 2017. On January 24,
2017, the Company entered into a 10% convertible promissory note in the principal of $80,000 (“Note 10”) with an unrelated
entity for services rendered. Note 10 is matured on January 24, 2018, and unsecured. This Note is convertible into common shares
of the Company at the conversion ratio of $0.25 or 50% discount of the lowest closing bid price on the primary trading market
on which Company's common stock is quoted for the last ten trading days prior to the conversion date, whichever is lower. However,
Note 10 is not convertible after 6 months of the effective date of this Note, which is July 24, 2017. Neither derivative liability
accounting nor beneficial conversion feature will be considered before Note 10 is entitled for conversion. During the six months
ended June 30, 2017, the Company recorded interest expense related to Note 10 in amount of $3,489. The balance of Note 10 was
$80,000 without unamortized debt discount as of June 30, 2017. On January
24, 2017, the Company entered into a 15% convertible line of credit (“Note 11”) with an unrelated entity in the amount
up to $250,000. On January 27, 2017, the Company received $50,000 cash for the line of credit, matured on January 27, 2018, and
unsecured. Note 11 is convertible into common shares of the Company at the conversion ratio of $0.25 or 50% discount of the lowest
closing price on the primary trading market on which Company's common stock is quoted for the last ten trading days prior to the
conversion date, whichever is lower. However, Note 11 is not convertible after 6 months of the effective date of this Note, which
is July 27, 2017. Neither derivative liability accounting nor beneficial conversion feature will be considered before Note 11
is entitled for conversion. During the six months ended June 30, 2017, the Company recorded interest expense related to Note 11
in amount of $3,208. The balance of Note 11 was $50,000 without unamortized debt discount as of June 30, 2017. On February
21, 2017, the Company received $25,000 cash pursuant to the terms of Note 11, matured on February 21, 2018 (“Note 11-1”).
Note 11-1 is not convertible after 6 months of the effective date of this Note, which is August 21, 2017. Neither derivative liability
accounting nor beneficial conversion feature will be considered before Note 11-1 is entitled for conversion. During the six months
ended June 30, 2017, the Company recorded interest expense related to Note 11-1 in amount of $1,344. The balance of Note 11-1
was $25,000 without unamortized debt discount as of June 30, 2017. On March
16, 2017, the Company received $40,000 cash pursuant to the terms of Note 11, matured on March 16, 2018 (“Note 11-2”).
Note 11-2 is not convertible after 6 months of the effective date of this Note, which is September 16, 2017. Neither derivative
liability accounting nor beneficial conversion feature will be considered before Note 11-2 is entitled for conversion. During
the six months ended June 30, 2017, the Company recorded interest expense related to Note 11-2 in amount of $1,767. The balance
of Note 11-2 was $40,000 without unamortized debt discount as of June 30, 2017. On April
6, 2017, the Company entered into a 15% convertible promissory note with an unrelated entity in the amount $50,000 (“Note
12”). Note 12 is matured on April 6, 2018, and unsecured. This Note is convertible into common shares of the Company at
the conversion ratio of $0.25 or 50% of the lowest trading price on the primary trading market on which Company's common stock
is quoted for the last ten trading days prior to the conversion date, whichever is lower. However, Note 12 is not convertible
after 6 months of the effective date of this Note, which is October 6, 2017. Neither derivative liability accounting nor beneficial
conversion feature will be considered before Note 12 is entitled for conversion. During the six months ended June 30, 2017, the
Company recorded interest expense related to Note 12 in amount of $1,771. The balance of Note 12 was $50,000 without unamortized
debt discount as of June 30, 2017. On April
21, 2017, the Company entered into a Securities Purchase Agreement with an unrelated entity, pursuant to which the purchasers
agreed to pay the Company an aggregate of up to $600,000 for an aggregate of up to 660,000 in Principal Amount of Notes. The first
tranche of $330,000 was closed simultaneously (“Note 13-1”). The proceeds of $300,000, net of $30,000 Original Issuance
Discount, was received by the Company. Note 13-1 is convertible into common shares of the Company at the conversion ratio of 60%
of the lowest trading price on the primary trading market on which Company's common stock is quoted for the last ten trading days
prior to the conversion date. The Company determined that the conversion features contained in Note 13-1 carrying value represents
a freestanding derivative instrument that meets the requirements for liability classification under ASC 815. As a result, the
fair value of the derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability.
The fair value of the derivative financial instrument of the convertible note was measured using the Binomial-Lattice valuation
model at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value
of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.
The derivative liabilities will be reclassified into additional paid in capital upon conversion. The table below
sets forth the assumptions for Binomial-Lattice valuation model on June 30, 2017.
Reporting Date Fair Value Term (Years) Assumed Conversion Price Market Price on Issuance Date Volatility Percentage Risk-free Rate
6/30/2017 $
299,852 0.81 $0.042 $0.0799 247% 0.0124 In addition,
in connection with this Securities Purchase Agreement, the Company granted purchasers 2,357,143 warrants with exercise price of
$0.14 per share (“Warrants A”), 1,885,715 warrants with exercise price of $0.175 per share (“Warrants B”)
and 1,571,429 warrants with exercise price of $0.21 per share (“Warrants C”). Warrants A, B and C are exercisable
on the grant date and expire in three years, each of which represents 100% of the Principal Amount at the Closing divided by the
respective exercise price. The fair value
of these warrants was measured using the Black-Scholes valuation model at the grant date. The table below sets forth the assumptions
for Black-Scholes valuation model on April 21, 2017.
Reporting
Date Fair Value Term (Years) Exercise
Price Market Price on Grant Date Volatility
Percentage Risk-free
Rate
4/21/2017 $814,000 3 $0.14
- $0.21 $0.14 676% 0.0177 As a result,
Note 13-1 was discounted in the amount of $330,000 and amortized over the remaining life of this Note. During the six months ended
June 30, 2017, the Company recorded interest expenses related to Note 13-1 in amount of $3,208 and amortization of debt discounts
in amount of $64,167. The balance of Note 13-1 was $330,000 with unamortized debt discount of $265,833 as of June 30, 2017. Convertible Notes Payable –
Related Party On April 21,
2008, the Company entered into an unsecured Convertible Debenture (“Debenture 1”) with a shareholder in the amount
of $150,000. Debenture 1 was convertible into Common Shares of the Company at $0.03 per share at the option of the holder no earlier
than August 21, 2008. Debenture 1 bore interest at 12% per year, matured in August 2009, and was unsecured. All principal and
unpaid accrued interest was due at maturity. In conjunction with the Debenture 1, the Company also issued warrants to purchase
5,000,000 shares of the Company’s Common Stock at $0.03 per share. The warrants expired on April 20, 2013. As a result of
issued warrants, the Company recorded a $150,000 debt discount during 2008 which has been fully amortized. The Company was in
default on Debenture 1, and no warrants had been exercised before expiration. The balance of Debenture 1 was $150,000 and $150,000
at June 30, 2017 and December 31, 2016, respectively. The Company recorded interest expense related to Debenture 1 in amount of
$9,000 and $9,000 during the six months ended June 30, 2017 and 2016, respectively. On March 11,
2009, the Company entered into an unsecured Convertible Debenture (“Debenture 2”) with a shareholder in the amount
of $15,000. Debenture 2 was convertible into Common Shares of the Company at $0.03 per share at the option of the holder. Debenture
2 bore interest at 12% per year, matured on March 11, 2014, and was unsecured. All principal and unpaid accrued interest was due
at maturity. The Company was in default on Debenture 2. The balance of Debenture 2 was $15,000 and $15,000 at June 30, 2017 and
December 31, 2016, respectively. The Company recorded interest expense related to Debenture 1 in amount of $900 and $900 during
the six months ended June 30, 2017 and 2016, respectively. Resulting from
the tainted issue by the derivative financial instrument of the convertible notes, The Company determined that the conversion
features contained in Debenture 1 and Debenture 2 carrying value represents a embedded derivative instrument that meets the requirements
for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in the note is
reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument of the convertible
note was measured using the Binomial-Lattice valuation model at the inception date of the note and will do so again on each subsequent
balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash
income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital
upon conversion. The table below
sets forth the assumptions for Binomial-Lattice valuation model on December 31, 2016 and June 30, 2017, respectively.
Reporting
Date Fair
Value Term (Years) Assumed
Conversion Price Market Price on Issuance Date Volatility Percentage Risk-free Rate
12/31/2016 $
1,072,513 0.50 $0.03 $0.2250 221% 0.0062
6/30/2017 $
274,454 0.10 $0.03 $0.0799 111% 0.0114 The following
is a schedule showing the future minimum loan payments in the future 5 years.
Year ending December 31,
2017 $ 309,647
2018 $ 575,000 |
