NOTE 5 – CONVERTIBLE PROMISSORY NOTES
The convertible promissory notes are unsecured and bear interest at between 8% and 12% per annum with all principal and accrued interest due and payable between one and two years from the dates of execution of the Notes. The Notes are due and were issued as disclosed in the following table. The Holders of the Notes can, in lieu of payment of the principal and interest, elect to convert such amount into common shares of the Company at the conversion prices per share disclosed in the following table.
Face amount
Interest rate
Due date
Conversion price per share
Promissory note of $125,000
8%
December 1, 2015
75% of average of the previous two lowest
trading days over the last 15 trading days
Promissory note of $40,000
8%
December 11, 2015
75% of average of the previous two lowest
trading days over the last 15 trading days
Promissory note of $100,000
10%
December 21, 2015
65% of lowest trading day over the last 15
trading days
Promissory note of $100,000
12%
July 8, 2015
55% of the lowest trading price over the
last 20 trading days
Promissory note of $50,000
8%
October 5, 2015
60% of the lowest trading price over the
last 15 trading days
Promissory note of $87,500
8%
January 15, 2016
70% of average of two lowest closing bid
price over the last 15 trading days
Promissory note of $66,667
12%
February 3, 2016
60% of the lowest trading price over the
last 25 trading days
Promissory note of $55,000
10%
February 12, 2016
63% of the lowest trading price over the
last 25 trading days
Promissory note of $38,889
8%
December 18, 2016
65% of the lowest trading price over the
last 20 trading days
Promissory note of $50,000
12%
February 3, 2017
65% of the lowest trading price over the
last 25 trading days
Promissory note of $55,555
8%
June 9, 2017
65% of the lowest trading price over the
last 20 trading days
During the six months period ended June 30, 2015, at the commitment dates, the initial fair values of the embedded conversion feature for the new convertible promissory notes were estimated at $842,215 and recorded as derivative liabilities, resulting in a Day 1 loss of $380,635. On June 30, 2015, all the derivative liabilities were valued at $742,186 which resulted in a further gain in fair value of $28,167 for the period ended June 30, 2015. The original issue discount for the new convertible promissory notes was $46,983 and $461,580 was allocated to the embedded derivative liabilities. The debt discounts are amortized over the terms of the respective Notes. The fair value of the embedded conversion feature is estimated at the end of each quarterly reporting period using the Multinomial lattice model, which uses a probability weighted discounted cash flow model. The model requires assumptions related to the interest rate, stock price and conversion price that would be in effect in different scenarios, for which cash flow projections and probabilities are made. A discounted weighted average cash flow over the various scenarios was completed, and compared to the discounted cash flow of the note without the embedded features, to arrive at the derivative liability.
The following table illustrates the fair value adjustments that were recorded related to the derivative liabilities associated with the convertible promissory notes:
Fair value as at January 1, 2015
TOXIC FIRE: Please due diligence and also net loss of $6,149,693. This could have 2BB outstanding before they see any funding. Outstanding shares already 595.2MM and growing everyday. Where did the dilution go to? See below on some, services rendered has been millions. This is a classic pipe dream of penny land dilution. Fasten the safety belts it's going to be a fast ride down. If the longs haven't figured it out by now they deserve to lose money. The only investors laughing all the way to the bank are the 1's who sold on all the pump and dump runs this has had! Good luck? DUE DILIGENCE!
$
336,390
New promissory notes
461,580
Elimination associated with conversion of promissory notes
(27,617
)
Change in fair value (gain)
(28,167
)
Fair value as at June 30, 2015
$
742,186
