7. CONVERTIBLE PROMISSORY NOTES

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

CONVERTIBLE PROMISSORY NOTES

NOTE 7 – CONVERTIBLE PROMISSORY NOTE

May 2016 Convertible Note

On May 4, 2016, the Company issued a $224,000 convertible promissory note bearing interest at 10.0% per annum to an accredited investor, payable beginning November 10, 2016, in monthly installments of $44,800 plus accrued interest and a cash premium equal to 10.0% of the installment amount.  The convertible promissory note was paid in full on March 4, 2017.  The holder had the right under certain circumstances to convert the note into common stock of the Company at a conversion price equal to 70% of the average of the 3 lowest volume weighted average trading prices during the 20-day period ending on the latest complete trading day prior to the conversion date.

The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity’s Own Equity, and concluded that the Convertible Note resulted in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature on the note was valued at $224,000 based on the Black-Scholes Model. The discount related to the beneficial conversion feature ($51,829) was amortized over the term of the debt (10 months).  For the year ended December 31, 2017, the Company recognized interest expense of $9,327 related to the amortization of the discount.

In connection with the issuance of the $224,000 note, the Company recorded debt issue cost and discount as follows:

$20,000 original issue discount and $4,000 debt issue cost, which was amortized over 10 months, with amortization of $4,000 for twelve-months ended December 31, 2017.

The convertible promissory note was paid in full on March 10, 2017, reducing the embedded derivative for the 2016 beneficial conversion right to zero at December 31, 2017.

September 2014 Convertible Note 

In connection with the issuance of a $158,000 convertible promissory note in 2014 (repaid in July 2015), the Company issued warrants to purchase shares of common stock.

· Warrants – recorded at fair value ($79,537) upon issuance, and marked -to-market on the balance sheet at $58,317 as of June 30, 2018 and $47,149 as of December 31, 2017, which was computed as follows:

	Commitment Date
Expected dividends		0%
Expected volatility		175.59%
Expected term: conversion feature	2 years

There was a controversy with the lender regarding the number of shares that would be issued with wa

A controversy and litigation between the lender and the Company emerged regarding the number of warrants attached to the loan agreement. The parties reached a settlement whereby the Company issued 1,600,000 shares of freely-tradable stock to the lender. As a result of the settlement, all of the remaining balance sheet amounts relating to the promissory note were eliminated in the quarter ended June 30, 2018.  The Company recorded Settlement Expense in the amount of $208,000 and Gain on Exchange in Fair Value of Derivative in the amount of $58,316.