7. Convertible Note

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Convertible Note

Note 7     CONVERTIBLE NOTE

On September 20, 2018, Nocera, Inc. entered into a one year $10,000 Convertible Note (“Note”) with Coral Investment Partners, LP. (“CIP”), an entity controlled by Erik Nelson, the Company’s corporate secretary and director. The Note carries an interest rate of twenty-four percent (24%), and is convertible into shares of the Company’s common stock at a price of $0.01 per share. As an inducement to issue the Note, CIP received 150,000 Class A Warrants and 150,000 Class B warrants at strike prices of $0.50 and $1.00, respectively.

The Company evaluates convertible instruments, such as the warrants issued in connection with the Note under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for at fair value with changes in fair value recorded in earnings. The Company determined that the conversion features in the warrants should not be treated as an embedded derivative, and therefore ASC 815 was not applicable.

If the conversion feature does not require derivative treatment under ASC 815, the instrument is then evaluated under ASC 470-20 “Debt with Conversion and other Options” for consideration of any beneficial conversion features (“BCF”) requiring separate recognition. The Company determined that a BCF existed because the conversion price on the Note was lower than the market price of the Company’s common stock.

The intrinsic value of the BCF was determined to be approximately $330,000. In accordance with ASC 470-20-30-8, the amount of the discount assigned to the BCF equal to the lower amount of either i) the Intrinsic Value of the BCF or ii) the proceeds realized upon the issuance of the note, therefore the Company recorded the discount assigned to the BCF of $10,000. Under the guidelines of ASC 470-20-55-11, the Company determined based on a $10,000 value of the Note and a $7,095 value for the Warrants; that approximately 58.5% of the Note should be allocated to the BCF, or $5,850. The BCF was recognized as note discount, and amortized through the maturity of the Note, with a corresponding increase to additional paid-in capital. For the year ended December 31, 2018, the interest accretion of the BCF was $1,635. The remaining 41.5% of the Note or $7,095 should be allocated to the warrants. Since the allocation cannot exceed the Note value, the value of the warrants was determined to be $4,150, and it was recognized as note discount to be amortized during the period of Note. The interest accretion of the warrants was $1,160.

As of December 31, 2018, the remaining principle amount of the Note was $10,000, and the remaining unamortized note discount was $7,205. The aggregate effective interest rate on the Note is approximately 24%. For the year ended December 31, 2018, the interest accretion and the contractual interest coupon of the Note was $2,795 and $671, respectively.

The fair value of 150,000 Class A Warrants and 150,000 Class B warrants issued on September 20, 2018 were measured by the Black-Scholes pricing model with the following assumptions.

	September 20, 2018
Dividend yield		–
Risk-free interest rate		2.96%
Expected term (in years)		4.57
Volatility		25.3%

The Company has repaid the Note together with the interest on January 3, 2019.