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5. Convertible Notes
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Convertible Notes

NOTE 5. CONVERTIBLE NOTES

 

In July 2018, the Company commenced an offering of up to $2 million of one year maturity convertible notes (“Notes”). These Notes carry both a voluntary conversion feature, and an automatic conversion feature. The Notes carry an interest rate of 12%, and are convertible into shares of the Company’s common stock.

 

Automatic conversion feature

 

If the Company issues equity securities (“Equity Securities”) in a transaction or series of related transactions resulting in aggregate gross proceeds to the Company of at least $5,000,000, including conversion of the Notes and any other indebtedness, or issuance of Equity Securities in connection with any business combination, including a merger or acquisition (a “Qualified Financing”), then the Notes, and any accrued but unpaid interest thereon, will automatically convert into the equity securities issued pursuant to the Qualified Financing at a conversion price equal to the lesser of (i) 50% of the per share price paid by the purchasers of such equity securities in the Qualified Financing or (ii) $0.40 per share.

 

Voluntary conversion feature

 

If these Notes have not been previously converted pursuant to a Qualified Financing, then, upon Holders election prior to the Maturity Date or effective upon the Maturity Date, the Holder may elect to convert their Notes into shares of the Company’s Common Stock at a conversion price equal to the lesser of (i) 50% of the market price for the Company’s Common Stock as of the Maturity Date or (ii) $0.40 per share.

 

During the period ended September 30, 2018, the Company received $905,000 in proceeds from the sale of convertible notes to six accredited investors.

 

Based on current activities Company believes it is highly probable that the Notes will be subject to the automatic conversion feature prior to the maturity date of the Notes. As a result the Company did not record a derivate liability associated with these Notes. The Company calculated a beneficial conversion feature of $905,000 and record the full amount as interest expense during the period ended September 30, 2018 because the Notes can be immediately converted without a waiting period.

 

The offering remains open as of the date of this Report.