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Convertible Notes
9 Months Ended
Sep. 30, 2017
Debt Disclosure [Abstract]  
Convertible Notes

Note 3. Convertible Notes

 

Effective August 7, 2017, the Company entered into the settlement agreement with Alpha Anstalt Capital and Chi Squared Capital Inc. as a result of the fact that Alpha and Chi Squared had taken the position that certain defaults may have occurred as a result of actions and/or inactions by the Company with respect to the Company’s obligations under convertible notes (the “Notes”) issued during 2016, which the Company did not deem to be defaults (the “Settlement Agreement”).

 

Pursuant to the Settlement Agreement, the Notes, which had originally provided for a maturity date of June 19, 2017 and were in the original principal amounts of $400,000 and $40,000, respectively, were extended until June 19, 2019, in consideration for which the Company agreed to an increase in the principal amounts to $551,600 and $55,160, respectively, both of which retain the adjusted conversion price of $0.14, calculated in accordance with the terms of the original Notes. Such conversion price is subject adjustments in the event of future financing at a price of less than $0.14 per share. As a further part of the settlement, the Company agreed to issue Alpha and Chi Squared a total of 528.82 newly authorized shares of Series A Convertible Preferred Stock having a stated value and liquidation preference of $1,000 per share, and are convertible into a total of 3,778,647 shares based upon a conversion price of $0.14 per share, subject to adjustment in the event of a future financing such that the amount of ordinary shares to be issued pursuant to conversion of Series A Convertible Preferred Stock will represent the value of $1,000, per 1 Series A Convertible Preferred Stock, based on a conversion price which is identical to the ordinary share price at which securities are offered in such future financing. The Series A Convertible Preferred Stock shall be entitled to receive dividends on the same basis as Ordinary Shares and shall have no voting rights.

 

As part of the Settlement Agreement, the Company extended an option, granted in July 2016 to Alpha and Chi Squared (“Option”) to purchase Notes for an aggregate of up to $385,000 (up to $350,000 for Alpha Capital Anstalt and up to $35,000 for Chi Squared Capital Inc.) (“Option Notes”) and Warrants (“Option Warrants”) substantially identical to the Notes and Warrants issued pursuant to Settlement Agreement. The Option is exercisable through to July 15, 2018.

 

The settlement was accounted for as extinguishment of the pre-settlement notes and re issuance of the Notes and Series A Convertible Preferred Stock. As a result of the Settlement Agreement, the Company recorded a charge to general and administrative expenses in the Statement of Operation Losses of $440,684 representing the penalties and liquidation damages portion of the above-mentioned provision, and $219,276 was charged to finance expenses in the Statement of Operating Losses. The Series A Convertible Preferred Stock were recorded in shareholders’ equity at their fair value at the effective date of the settlement. As the Company concluded the conversion feature embedded in the amended notes is not a beneficial conversion feature pursuant to the provisions of ASC 470-20 (“Debt with Conversion and Other Options”), the post amendment carrying amount of the convertible notes, which was based on the fair value of the convertible notes at the effective date of the settlement, was recorded in liabilities in its entirely.

 

Other the aforementioned notes, all notes with a total principle amount of $195,000 fell due during the nine months ended September 30, 2017. The Company is currently in discussions to extend these notes and believe that these discussions will be successful. There are no contractual penalties in relation to the notes that fell due other than the accumulation of their pre-default contractual interest.