CONVERTIBLE NOTE PAYABLE, RELATED AND UNRELATED PARTIES |
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| CONVERTIBLE NOTE PAYABLE, RELATED AND UNRELATED PARTIES | ||||||||||||||||||||||||||||||||||||||||||||||||||
| CONVERTIBLE NOTE PAYABLE, RELATED AND UNRELATED PARTIES | 6. CONVERTIBLE NOTE PAYABLE, RELATED AND UNRELATED PARTIES
Convertible notes payable net of discount outstanding as of January 31, 2017 and 2016 were $217,452 and $82,621, respectively.
As of January 31, 2017, all convertible notes payable were due within the year ending January 31, 2018 with the exception of $26,276, which were classified as long term convertible notes payable. Of the long term convertible notes payable, $19,121 is due on December 31, 2018 and $7,155 is due on January 31, 2019.
As of January 31, 2016, all convertible notes payable were due within the year ending January 31, 2017 with the exception of $20,621, which were classified as long term convertible notes payable. Of the long term convertible notes payable, $19,121 is due on December 31, 2018 and $1,500 is due on January 31, 2019.
On January 8, 2014 the Company issued an unsecured convertible note to one accredited investor (as that term is defined under the Securities Act of 1933, as amended) in the aggregate amount of $50,000. This convertible note accrues interest at the rate of 19% per annum and is convertible only when a “qualifying financing” event takes place. The Company secured an initial extension of the convertible note to January 29, 2015 and subsequently obtained a further extension to December 31, 2016. The note has been reduced to $43,500 through the sales of part of the debt to unrelated third parties.
The note, but none of the accrued unpaid interest thereon, may convert into equity securities at the option of the holder if the Company issues equity securities and any other indebtedness in aggregate with gross proceeds of $1,200,000, including conversion of the note (a “Qualified Financing”). The conversion price is equal to 80% of the per share price paid by the purchasers of such equity securities in the Qualified Financing. Accrued and unpaid interest will be paid by the Company at time of conversion.
If a Qualified Financing has not occurred and the Company elects to consummate a sale of the company prior to the maturity date of the Note, the Company will give the holder a minimum ten days prior written notice of an anticipated closing date of such sale of the Company in order that the holder may consider a conversion of their Note into equity in advance of a sale transaction.
No value had been assigned to the conversion feature attached to this note prior, as the possibility of the Company completing such a Qualifying Financing or completing a sale of the Company before January 31, 2017 and 2016 was considered to be very remote.
On April 17, 2015, the Company received $5,000 by way of an unsecured short-term loan from a non-related party for a term of 60 days that was later extended until April 23, 2017. Principal and interest at 8% per annum accrued thereon are due and payable on April 23, 2017 and is further renewable. Also, the lender has the right to convert the principal and accrued interest into shares of the Company’s common stock at $.01 cents. The Company is currently in discussions with the lender to further extend the maturity date and has been verbally extended to be later written. Until such time as that is completed the note is considered past due.
On October 2, 2015, the Company received $12,500 by way of an unsecured short-term loan from a non-related party for a term of one year. Principal and interest at 8% per annum accrued thereon are due and payable on October 1, 2016. Also, the lender has the right to convert the principal and accrued interest into shares of the Company’s common stock. The conversion rate is equal to the fair market value of the Company’s common stock on the date of conversion. This loan has been extended until October 1, 2017.
The Company had executed three lending arrangements with a related party, affiliated to the CEO of the company. The effective dates of the loans are November 24, 2015, December 8, 2015 and January 14, 2016. The loan amounts are $3,000, $16,121 and $1,500, respectively, with interest accruing at 5% per annum. Repayment is in one lump sum due and payable on or before December 31, 2018, December 31, 2018 and January 31, 2019, respectively.
The Company has executed two additional notes with the same related party. The effective dates of the additional loans are March 10, 2016 and March 15, 2016. The loan amounts are $2,770 and $2,885, respectively, with interest accruing at 5% per annum. Repayment is in one lump sum due and payable on or before January 31, 2019. All notes are convertible, at the holder’s request, into shares of the Company’s common stock at the rate of $9.50 per share.
On February 9, 2016 and March 22, 2016, the Company entered into two loan agreements with unrelated parties for $33,000 and $25,600, respectively. The notes are due and payable twelve months from the issuance date and bear interest at 8% per annum. If the Notes are paid off prior to the due date, the Company is required to pay the face amount plus a scaled penalty ranging from 10% to 35% depending on the repayment date. Also noted, after 181 days from the issuance date, the Note is convertible into the shares of the Company’s common stock. The conversion rate is equal to 55% of the market price during the previous 10 trading days. The loans were eligible for conversion in August and September 2016.
The Convertible Promissory Note for $33,000 with an Accredited Investor is subject to anti-dilution adjustments that allow for the reduction in the Conversion Price in the event the Company is in default as well as a variable conversion price that is calculated as a discount to market. The Company accounted for the conversion option in accordance with ASC Topic 815. Accordingly, the Conversion Option is not considered to be solely indexed to the Company’s own stock and, as such, recorded as a liability.
Each convertible promissory note derivative liability has been measured at fair value at January 31, 2017 using a Black Scholes valuation model. Since the Conversion Price contains an anti-dilution adjustment as well as a variable conversion price that is calculated as a discount to market, the probability that the Conversion Price of the Notes would decrease as the share price decreased was incorporated into the valuation calculation.
During the year ending January 31, 2017, the Company issued 16,232,785 shares of common stock at a conversion price of $0.00143 per share in settlement of note payable. At September 14, 2016, the first Convertible Promissory Note for $33,000 was paid in full. As such, the fair value of the conversion feature at January 31, 2017 is $0.
The Convertible Promissory Note for $25,600 with an Accredited Investor is subject to anti-dilution adjustments that allow for the reduction in the Conversion Price in the event the Company is in default as well as a variable conversion price that is calculated as a discount to market. The Company accounted for the conversion option in accordance with ASC Topic 815. Accordingly, the Conversion Option is not considered to be solely indexed to the Company’s own stock and, as such, recorded as a liability.
Each convertible promissory note derivative liabilities have been measured at fair value at January 31, 2017 using a Black Scholes model. Since the Conversion Price contains an anti-dilution adjustment as well as a variable conversion price that is calculated as a discount to market, the probability that the Conversion Price of the Notes would decrease as the share price decreased was incorporated into the valuation calculation.
During the year ending January 31, 2017 the Company issued 26,094,248 shares of common stock at a price ranging from $0.00083 to $0.00143 per share in full settlement of the note payable. At January 31, 2017, the second Convertible Promissory Note for $25,600 had a balance of $0. As such, the fair value of the conversion feature at January 31, 2017 is $0.
The inputs into the Black Scholes model were as follows related to valuation of this derivative during the year ending:
The convertible loan for $33,000 that was due on August 13, 2016 had been designated to be repaid in two stages as there was concern for the entire loan to be converted at current share prices. The outstanding portion of the loans converted to date representing 42,327,034 restricted and non-restricted common shares issued during the year. The Company recognized gain on conversion of $90,200. The remaining $14,815 outstanding balance of the $33,000 convertible loan was paid in cash resulting in full settlement of the balance. The Company borrowed $20,000 that is not convertible in nature and has allowed a partial conversion of the loans to reduce its liabilities and to provide further liquidity with free trading shares.
In April 2016, the Company entered into an agreement (“Investment Agreement”) for an unrelated third party (“Investor”) to purchase up to $5,000,000 of the Company’s common stock. In conjunction with the Investment Agreement, the Company entered into a registration rights agreement (“Registration Agreement”). The Registration Agreement requires the Company to use its best effort, within thirty days, to file with the SEC a Form S-1 (“Registration Statement”) covering a certain number of shares to be used for the Investment Agreement. Upon the effective date of the Company’s Registration Statement, the Company has the right to put (“Put Notice”) to the investor, for purchase, a certain amount of shares of the Company’s common stock. For each Put Notice, the number of shares shall be equal to one-hundred and fifty percent of the average of the daily trading dollar volume of the Company’s common stock for the ten consecutive trading days immediately prior to the Put Notice, so long as such amount does not exceed an accumulative amount per month of $150,000, unless prior approval of the Investor.
In conjunction with Investment Agreement, the Company entered issued two promissory Notes to the Investor in the amounts of $46,000 and $55,000. Both promissory notes accrue interest at the rate of 10% per annum and are due six and seven months respectively from the effective date of the Company’s Registration Statement which was filed on May 17, 2016. This statement is not effective as of today. The first tranche of proceeds of $20,000 from the promissory note were used to pay the Company’s fees associated with the Investment Agreement. The proceeds from the $55,000 promissory note are to be used to pay the Company’s commitment fee to the Investor. The Investor did not advance the second tranche of the promissory note of $46,000 after the S-1 was filed on May 16, 2016. Further review of the S-1 by the Securities Exchange Commission has been set aside by the Company as it does not currently trade on the OTCQB marketplace. While the company may upgrade from the OTC Pink status at a cost of $12,500, it did not qualify to do so during the year ended January 31, 2017. A board decision on this matter is further complicated by the decision of our counsel to end their security practice in June of this year. The directors had chosen to discontinue matters pertaining to addressing the S-1 comments for the time being. However, the directors did negotiate with the Investor and agreed to repay the original advance and applied interest for sum of $25,000 and the second promissory note for $55,000 has been extinguished as part of this agreement Management included a portion of the promissory note for $46,000 as a liability for October 31, 2016 as it was outstanding and interpreted as due on October 19, 2016. Management opted for the settlement of this note as discussed below.
The Conversion Option is not considered to be solely indexed to the Company’s own stock and, as such, recorded as a liability. While the first Promissory note for $46,000 was due October 16, 2016 and it was paid in November. The Promissory Note for $55,000 was not due until November 19, 2017 and was extinguished upon payment of first note.
Each convertible promissory note derivative liabilities have been measured at fair value at January 31, 2017 using a Black Scholes model. Since the Conversion Price contains an anti-dilution adjustment as well as a variable conversion price that is calculated as a discount to market, the probability that the Conversion Price of the Notes would decrease as the share price decreased was incorporated into the valuation calculation.
At November 15, 2016, the Convertible Promissory Note for $46,000 was paid in full. As such, the fair value of the conversion feature at January 31, 2017 is $0.
The inputs into the Black Scholes model were as follows related to valuation of this derivative during the year ending:
The Company took on a loan of $52,500, in the form of a convertible note, in November from an Accredited Investor (8K filed) in order to retire the outstanding note due to an Investor for $23,000 and to extinguish an additional note for a success fee in the amount of $55,000. The note is due and payable twelve months from the issuance date and bear interest at 5% per annum. If the Note is paid off prior to 181 days, the Company is required to pay the face amount plus a scaled penalty ranging from 10% to 30% depending on any repayment date being before May 8, 2017 otherwise the investor may convert loan to common shares.
The Company took on a further loan of $30,000, in the form of a convertible note on January 31, 2017 with unrelated parties. The note is due and payable twelve months from the issuance date and bears interest at 8% per annum. If the Note is paid off prior to the due date, the Company is required to pay the face amount plus a scaled penalty ranging from 10% to 35% depending on the repayment date. Also noted, after 181 days from the issuance date, the Note is convertible into the shares of the Company’s common stock. The conversion rate is equal to 55% of the market price during the previous 10 trading days. The loan is convertible at the end of July.
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