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Convertible Notes

12 Months Ended

Dec. 31, 2018

Debt Disclosure [Abstract]

Convertible Notes

Note 3 - Convertible Notes

A.	On August 7, 2017, the Company entered into the settlement agreement with Alpha 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 the Alpha Chi Option 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.

The Company accounts for options to purchase convertible notes and warrants (refer to the Alpha Chi Option above) as derivative liabilities that are measured at their far value at each period end, in accordance with ASC 815 (“Derivatives and Hedging”).

The Company uses directly observable inputs as well as significant unobservable inputs in the valuation of these derivative liabilities. The inputs used in the valuation are risk free interest rate, expected volatility, expect option term, expected dividend yield and Company specific discount rate.

On January 24, 2018, Alpha Anstalt Capital (“Alpha”), Chi Squared Capital (“Chi”), Firstfire Global Opportunities Fund LTC, Goldmed Ltd, IlanMalca and Maz Partners, former holders of the Company’s convertible notes, sold their convertible notes previously issued by the Company in the aggregate amount of $958,611 (the “January 2018 Convertible Notes”) to certain new third-party accredited investors (the “New Investors”) and, in connection therewith, the Company and the New Investors agreed to: (i) amend the conversion price of the January 2018 Convertible Notes from $0.014 to $0.01; (ii) cancel the Class A warrants and Class B warrants issued together with the January 2018 Convertible Notes (see Note 4 Stockholders’ Equity for accounting treatment of the cancelled warrants); (iii) amend the interest rate from 8% to 1% per annum under the January 2018 Convertible Notes; (iv) extend the repayment/maturity date on the January 2018 Convertible Notes to January 23, 2019 (see Subsequent Events Note 10 ); and (iv) cancel the options granted to Alpha and Chi in July 2016 (the “Alpha-Chi Options”).

The change in terms of the January 2018 Convertible Notes, including the cancellation of the above-referenced warrants, was accounted for as an extinguishment of the convertible notes and the issuance of new convertible notes. The Company recorded a finance expense in the amount of $21,622,897 in the Statement of Comprehensive Loss and an increase to Additional Paid-in Capital in the Statement of Stockholders’ Deficit of $22.6 million as a result of the transaction.

The Company further concluded that the post-amended January 2018 Convertible Notes contain a -beneficial conversion feature equal to the par value of the January 2018 Convertible Notes ($958,611) and accordingly, recorded a discount on the January 2018 Convertible Notes, to be amortized to finance expense in the Statement of Comprehensive Loss over the term of the January 2018 Convertible Notes.

On January 24, 2018, $73,000 of the January 2018 Convertible Notes was converted, at the adjusted conversion price of $0.01 per share, into 7,300,000 shares of the Company’s common stock and on March 19, 2018, a further $9,218 of the January 2018 Convertible Notes were converted, at the adjusted conversion price of $0.01 per share, into 921,800 shares of the Company’s common stock and on December 9, 2018, $465,172 of the January 2018 Convertible Notes was converted, at the adjusted conversion price of $0.01 per share, into 465,172,000 shares of the Company’s common stock.

		December 31, 2018				December 31, 2017
Principle		$	958,611			$	890,766
Conversion of convertible notes to shares			(547,390	)			-
Accrued interest			-				67,846
Discount			(13,938	)			-
Total			397,283				958,612

B.

In January 2018, the Company received from certain third-party accredited investors $100,000 in consideration for the issuance of convertible promissory notes (the “$100,000 Convertible Notes”) as follows: (i) interest at the rate of 1% per annum; (ii) a conversion price of $0.01 per share of common stock; and (iii) repayable through to January 15, 2019, without penalty. The beneficial conversion feature was valued at $100,000, which resulted in a $100,000 discount recorded as a reduction of debt and an increase to additional paid in capital in the Statement of Stockholders’ Deficit. The discount is amortized to finance expenses in the consolidated statements of Comprehensive Loss over the term of the $100,000 Convertible Notes.

On January 23, 2018, $3,000 of the $100,000 Convertible Notes was converted at $0.01 per share into 300,000 shares, based upon the $100,000 Notes conversion price of $0.01 per share of common stock and On December 14 2018, $5,004 of the $100,000 Convertible Notes was converted, at the conversion price of $0.01 per share, into 504,600 shares of the Company’s common stock.

		December 31, 2018				December 31, 2017
Principle		$	100,000			$	-
Conversion of convertible notes to shares			(8,004	)			-
Discount			(3,830	)			-
Total			88,166				-

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- Definition

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.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-URI http://asc.fasb.org/topic&trid=2208564

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