In July 2017, the Company executed an exchange agreement with the factor which transferred the amount due to the factor into a promissory note for $210,000, non-interest bearing, and maturing on February 7, 2018. Per the terms of the note, the Company shall make seven payments as follows: $60,000 in August 2017, which has been paid, $20,000 per month from September 2017 to January 2018, and $50,000 in February 2018. In the event of a default of the payment terms, the outstanding balance shall increase to 120% of the note balance. Additionally, if the note is not paid in full by the maturity date, the revised outstanding balance shall be convertible into shares of common stock of the Company at a price per share discount of 20% of the lowest trading market price of the Company’s common stock for the twenty days preceding a conversion notice.
In July 2017, the Company issued a convertible note payable for $175,000, bearing interest at 10% per annum, and maturing in July 2018. At the option of the holder, beginning seven months from the date issued, the note is convertible into shares of common stock of the Company at a price per share discount of 42% of the lowest closing market price of the Company’s common stock for the twenty days preceding a conversion notice. The Company determined that the conversion feature of the note was not fixed, and will record the fair value of the conversion feature of approximately $190,000 as a derivative liability.