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Convertible Notes Payable to Related Party
6 Months Ended
Jun. 30, 2016
Debt Disclosure [Abstract]  
Convertible Notes Payable to Related Party

Note 6 – Convertible Notes Payable to Related Party

 

In July 2015, the Company issued its convertible promissory notes to Alex Bafer, Chairman and former CEO in exchange for the cancellation of previously issued promissory notes in the aggregate of $555,000 and accrued interest of $13,000 for a total of $543,000. The notes are unsecured, bear interest of 5% per annum, matured on October 1, 2015 and are convertible to shares of common stock at a conversion price equal to the lowest 20-day stock price prior to conversion with a 50% discount.

 

The Company considered the current FASB guidance of “Contracts in Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability of whether or not within the issuers’ control means the instrument is not indexed to the issuer’s own stock. Accordingly, the Company determined that the conversion prices of the Notes were not a fixed amount because they were subject to an adjustment based on the occurrence of future offerings or events. As a result, the Company determined that the conversion features of the Notes were not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as derivative liabilities upon issuance. The Company determined that upon issuance of the convertible Notes in 2015, the initial fair value of the embedded conversion feature was $1.5 million. The Company determined that the cancellation of the previously issued promissory notes in exchange for the convertible notes issued in 2015 was an extinguishment of debt, and the fair value of the derivative liability of $1.5 million was created upon the exchange of debt instruments and was accounted as a debt extinguishment cost during the year ended December 31, 2015.

 

In October 2015, the notes matured and became past due. As a result, the stated interest of 5% increased to 22% pursuant to the term of the note. As of December 31, 2015, total outstanding note balance amounted to $543,000 and accrued interest of $42,000.

 

During the period ended June 30, 2016, Mr. Bafer converted principal balance of $9,000 to 35 million shares of common stock. In addition, the Company paid Mr. Bafer $100,000 and accrued interest of $57,000. As of June 30, 2016, total outstanding note balance amounted to $434,000 and accrued interest of $99,000.

 

In July 2016, the Company and Mr. Bafer agreed to extend the maturity date of these notes to August 1, 2017. There were no other terms changed and no additional compensation paid.