7. CONVERTIBLE NOTES PAYABLE

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

7. CONVERTIBLE NOTES PAYABLE

NOTE 7: CONVERTIBLE NOTES PAYABLE

Convertible notes payable consist of:

	June 30, 2015 (Unaudited)		December 31, 2014
Note payable to a third party, bearing interest at 8% per annum, due December 30, 2015 (NOTE 1)	$	79,000	$	—
Note payable to a third party, bearing interest at 8% per annum, due March 3, 2016 (NOTE 2)		54,000		—
Convertible notes payable - current		133,000		—
Premium on convertible notes payable		96,310		—
Notes payable, net of premium	$	229,310	$	—

Convertible Promissory Note 1 (“NOTE 1”)

On March 26, 2015, the Company executed a Convertible Promissory Note (the “NOTE 1”) and received $75,000 (the “Draw”) net of $4,000 in legal fees on April 20, 2015. The principal sum of $79,000 together with any interest on the unpaid balance at the rate of 8% per annum will become due on December 30, 2015. The NOTE 1 may not be prepaid in whole or in part. No amount of principal or interest on NOTE 1 which is not paid when due shall bear interest at the rate of 22% per annum from the due date until the same is paid. Interest shall commence accruing on the date that the NOTE 1 is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. The holder shall have the right from time to time, and at any time during the period beginning on the date which is 180 days following the date of this NOTE 1 and ending on the later of: (i) the maturity date and (ii) the date of payment of the default amount, each in respect of the remaining outstanding principal amount of this NOTE 1 into fully paid and non-assessable shares of common stock or other securities of the Company into which such common stock shall hereafter be changed or reclassified at the conversion price determined as provided herein; provided, however, that in no event shall the holder be entitled to convert any portion of this NOTE 1 in excess of that portion of the NOTE 1 upon conversion of which the sum of 1) the number of shares of common stock beneficially owned by the holder and (2) the number of shares of common stock issuable upon the conversion of the portion of this NOTE 1 with respect to which the determination of this provision is being made, would result in beneficial ownership by the holder of more than 9.99% of the outstanding shares of common stock. The conversion price shall equal the Variable Conversion Price subject to equitable adjustments. The Variable Conversion Price shall mean 58% multiplied by the Market Price (representing a discount rate of 42%). Market price means the average of the lowest 3 trading prices for the common stock during the 10 trading day period ending on the latest trading day prior to the conversion date.

The net carrying value of Note 1 at June 30, 2015 and December 31, 2014 was $79,000 and $0, respectively. The Company recorded a premium of $57,207 on the issuance date as the note is considered stock settled debt which is charged to interest expense for the three months and six months periods ended June 30, 2015. In addition, the Company recorded an interest expense of $1,229 for the three months and six months periods ended June 30, 2015.

Convertible Promissory Note 2 (“NOTE 2”)

On May 29, 2015, the Company executed a Convertible Promissory Note (the “NOTE 2”) of $54,000 and received cash proceeds of $43,500 (the “Draw”) net of disbursing $4,000 in legal fees and $6,500 in accounting fees on June 3, 2015. The principal sum of $54,000 together with any interest on the unpaid balance at the rate of 8% per annum will become due on December 30, 2015. The NOTE 2 may not be prepaid in whole or in part. No amount of principal or interest on NOTE 2 which is not paid when due shall bear interest at the rate of 22% per annum from the due date until the same is paid. Interest shall commence accruing on the date that the NOTE 2 is fully paid and shall be computed n the basis of a 365-day year and the actual number of days elapsed. The holder shall have the right from time to time, and at any time during the period beginning on the date which is 180 days following the date of this NOTE 2 and ending on the later of: (i) the maturity date and (ii) the date of payment of the default amount, each in respect of the remaining outstanding principal amount of this NOTE 2 into fully paid and non-assessable shares of common stock or other securities of the Company into which such common stock shall hereafter be changed or reclassified at the conversion price determined as provided herein; provided, however, that in no event shall the holder be entitled to convert any portion of this NOTE 2 in excess of that portion of the NOTE 2 upon conversion of which the sum of 1) the number of shares of common stock beneficially owned by the holder and (2) the number of shares of common stock issuable upon the conversion of the portion of this NOTE 2 with respect to which the determination of this proviso is being made, would result in beneficial ownership by the holder of more than 9.99% of the outstanding shares of common stock. The conversion price shall equal the Variable Conversion Price subject to equitable adjustments. The Variable Conversion Price shall mean 58% multiplied by the Market Price (representing a discount rate of 42%). Market price means the average of the lowest 3 trading prices for the common stock during the 10 trading day period ending on the latest trading day prior to the conversion date.

The net carrying value of Note 2 at June 30, 2015 and December 31, 2014 was $54,000 and $0, respectively. The Company recorded a premium of $39,103 on the issuance date as the note is considered stock settled debt which is charged to interest expense for the three months and six months periods ended June 30, 2015. In addition, the Company recorded an interest expense of $320 for the three months and six months periods ended June 30, 2015.

As a result of issuance of the above NOTE 1 and NOTE 2, the Company recorded a premium of $96,310 on notes payable as the notes are considered stock settled debt which was charged to interest expense as of June 30, 2015. The Company also recorded interest expense of $1,549 for the three months and six months periods ended June 30, 2015.