EMAV HOLDINGS, INC. AND SUBSIDIARY
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
For The Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(782,183
|
)
|
|
$
|
(222,678
|
)
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
Depreciation
|
|
|
1,264
|
|
|
|
4,656
|
|
Amortization of prepaid consulting services for stock issuances
|
|
|
1,000
|
|
|
|
42,666
|
|
Amortization of OID discount on notes payable
|
|
|
16,571
|
|
|
|
9,956
|
|
Amortization of embedded conversion option liability discount
|
|
|
89,157
|
|
|
|
-
|
|
Change in the fair value of embedded conversion option liability
|
|
|
509,315
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
9,570
|
|
|
|
33,260
|
|
Accrued liabilities
|
|
|
2,949
|
|
|
|
4,689
|
|
Net cash used in operating activities
|
|
|
(152,357
|
)
|
|
|
(127,451
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Cash proceeds from sale of stock
|
|
|
-
|
|
|
|
71,500
|
|
Cash proceeds from note payable
|
|
|
149,800
|
|
|
|
-
|
|
Cash proceeds from related party
|
|
|
12,500
|
|
|
|
10,000
|
|
Cash payments against note payable
|
|
|
(11,745
|
)
|
|
|
(6,953
|
)
|
Net cash provided by financing activities
|
|
|
150,555
|
|
|
|
74,547
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(1,802
|
)
|
|
|
(52,904
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the period
|
|
|
1,802
|
|
|
|
63,914
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
0
|
|
|
$
|
11,010
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for interest
|
|
$
|
7,955
|
|
|
$
|
626
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
Issuance of common stock pursuant to debt conversion
|
|
$
|
37,462
|
|
|
$
|
-
|
|
Settlement of embedded conversion derivative
|
|
$
|
86,414
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTE 1 – NATURE OF OPERATIONS AND GOING CONCERN
As used herein and except as otherwise noted, the term "Company", "it(s)", "our", "us", "we" and "EMAV" shall mean EMAV Holdings, Inc., a Delaware corporation, and its consolidated subsidiary Electric Motors and Vehicles Company ("EMAVC").
EMAVC's principal business is electric vehicle manufacturing and sales. It plans to design, assemble, and sell premium electric rugged sport adventure vehicles directly through a network of dealerships. EMAVC will deploy a unique approach to build and bring its vehicles to market. Rather than creating a new vehicle and building out a new distribution network, EMAVC will use the four-door Jeep Wrangler as the platform for its signature electric vehicle. At this time further development and initiation of sales is entirely dependent on our ability to raise additional capital.
Going Concern
The accompanying (a) condensed consolidated balance sheet at December 31, 2015 has been derived from the audited statements, and (b) the condensed consolidated unaudited financial statements as of and for the periods ended June 30, 2016 and 2015, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 (the "2015 Annual Report"), filed with the Securities and Exchange Commission (the "SEC") on April 4, 2016. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments), have been made which are necessary for a fair financial statements presentation. The financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the financial statements not misleading as required by Regulation S-X, Rule 10-01. Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results of operations expected for the year ending December 31, 2016.
The Company's unaudited consolidated financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not yet established a stable ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.
The Company funded its operations in 2015 and 2016 through sale of its equity, debt financing and sale of its vehicle. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary financing to continue operations, and the attainment of profitable operations. The Company incurred a net loss of $782,183 for the six months ended June 30, 2016, used net cash in operating activities of $152,357, has a working capital deficit of $900,958, and has an accumulated deficit of $6,080,830 as of June 30, 2016. These factors, among others raise a substantial doubt regarding the Company's ability to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summary of significant accounting policies of the Company is presented to assist in the understanding of the Company's consolidated financial statements. The consolidated financial statements and notes are the representation of the Company's management who is responsible for their integrity and objectivity. The consolidated financial statements of the Company conform to accounting principles generally accepted in the United States of America (U.S. GAAP).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Electric Motors and Vehicles Company. All intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates of valuation of equity instruments. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The company did not have any cash equivalents at June 30, 2016 and December 31, 2015, respectively.
Fair value of Financial Instruments and Fair Value Measurements
ASC 820, "
Fair Value Measurements and Disclosures",
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company's financial instruments consist principally of accounts payable, accrued liabilities, loan payable to a related party and promissory notes payable. Pursuant to ASC 820 and ASC 825, "
Financial Instruments"
, the fair value of our cash equivalents is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Assets and liabilities measured at fair value on a recurring and non-recurring basis consist of the following at June 30, 2016:
|
|
|
Fair Value Measurements at June 30, 2016
|
|
|
Carrying
Value at
June 30,
2016
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Embedded conversion option liability
|
|
$
|
673,615
|
|
|
$
|
-
|
|
|
$
|
673,615
|
|
|
$
|
-
|
|
The following is a summary of activity of Level 2 assets and liabilities for the period ended June 30, 2016:
Embedded conversion option liability
|
|
|
|
Balance – January 1, 2016
|
|
$
|
78,713
|
|
Additions
|
|
|
172,000
|
|
Reclassification to equity
|
|
|
(86,413
|
)
|
Change in fair value
|
|
|
509,315
|
|
Balance – June 30, 2016
|
|
$
|
673,615
|
|
Changes in fair value of the embedded conversion option liability are included in Other Income (Expenses) in the accompanying Condensed Consolidated Statements of Operations.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
Revenue Recognition
The Company recognizes revenues when persuasive evidence of an arrangement exists; delivery has occurred; price is fixed or determinable; and collectability of the related receivable is reasonably assured. The Company closely follows the provisions of ASC 605 "
Revenue Recognition
", which includes the guidelines of Staff Accounting Bulletin No. 104 as described above. The Company has not recognized any revenue for the three months and six months ended June 30, 2016 and 2015, respectively.
Earnings (Loss) Per Common Share
The Company computes net earnings (loss) per share in accordance with ASC 260, "
Earnings per Share"
. ASC 260 requires presentation of both basic and diluted net earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible note and preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. For the three months and six months ended June 30, 2016 and 2015, there were 4,170,358 and 0 shares of common stock available for conversion of convertible notes into equity, which if exercised, may dilute future earnings per share. Warrants outstanding to purchase 2,500,000 shares of common stock expired on April 14, 2016, and were excluded from these calculations as their effect would be anti-dilutive due to the reported net losses in each period. The following table sets forth the computation of basic and diluted net income (loss) per common share from continuing operations:
|
|
For the
Three Months Ended
June 30,
|
|
|
For the
Six Months Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
1,506,946
|
|
|
$
|
(62,251
|
)
|
|
$
|
(782,183
|
)
|
|
$
|
(222,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
48,944,000
|
|
|
|
46,654,664
|
|
|
|
48,020,817
|
|
|
|
46,622,869
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory notes convertible into common shares
|
|
|
4,170,358
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares and assumed conversions
|
|
|
53,114,358
|
|
|
|
46,654,664
|
|
|
|
52,191,175
|
|
|
|
46,622,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
Diluted
|
|
$
|
0.03
|
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Issuances of the Company's common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a "performance commitment" which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete. However, situations may arise in which counter performance may be required over a period of time but the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist as the instruments fully vested on the date of agreement, the Company determines such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for the Company to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.
Non-Cash Equity Transactions
Shares of equity instruments issued for non-cash consideration are recorded at the estimated fair market value of the consideration granted based on the estimated fair market value of the equity instrument, or at the estimated fair market value of the goods or services received whichever is more readily determinable.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, "
Income Taxes"
. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
The Company follows the provisions of ASC 740-10, "
Accounting for Uncertain Income Tax Positions
." When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Recent Accounting Pronouncements
We qualify as an "
emerging growth company
" under the 2012 JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.
In February 2015, the FASB issued ASU 2015-02, "Consolidation: Amendments to the Consolidation Analysis" ("ASU 2015-02"). This standard update is intended to improve targeted areas of consolidation guidance for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. This ASU simplifies consolidation accounting by reducing the number of consolidation models and improves current U.S. GAAP by (1) placing more emphasis on risk of loss when determining a controlling financial interest; (2) reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity; and (3) changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or variable interest entities. The amendments in ASU 2015-02 are effective for reporting periods beginning after December 15, 2015, with early adoption permitted. Entities can transition to the standard either retrospectively or as a cumulative effect adjustment as of the date of adoption. The Company has not adopted ASU 2015-02 as of June 30, 2016, and the adoption is not expected to have an impact on the Company's consolidated financial statements.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
In August 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-15,
Presentation of Financial Statements Going Concern
, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. The guidance is not expected to have a material impact on the Company's financial statements.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes
(Topic 740): Balance Sheet Classification of Deferred Taxes. The amendments in this update simplify the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. These amendments may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The guidance is not expected to have a material impact on the Company's financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for a public entity. Early adoption of the amendments in this standard is permitted for all entities and the Company must recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently in the process of evaluating the effect this guidance will have on its financial statements and related disclosures.
The Financial Accounting Standards Board issues Accounting Standard Updates to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consists of:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
7,583
|
|
|
$
|
7,583
|
|
Less: accumulated depreciation
|
|
|
(5,529
|
)
|
|
|
(4,265
|
)
|
Property and equipment, net
|
|
$
|
2,054
|
|
|
$
|
3,318
|
|
Depreciation expense for the three months and six months ended June 30, 2016 and 2015 was $632 and $1,264, compared to $1,792 and $4,656 for the same comparable periods in 2015.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
NOTE 4 – NOTES PAYABLE
Notes payable consist of:
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Stockholder note payable, original principal balance $40,000, unsecured, 5% stated annual interest, monthly interest only payments from September 18, 2014 to April 2015, 24 fixed monthly payments of $3,290 from May 18, 2015 to April 18, 2017. Original discount of $33,233 applied to normalize interest to 5% will be amortized over the loan term (P/Note 1)
|
|
$
|
73,233
|
|
|
$
|
73,233
|
|
|
|
|
|
|
|
|
|
|
Stockholder note payable, principal balance of $53,000, unsecured, interest bearing, monthly payment of $3,790 starting February 1, 2014, due April 1, 2016 (P/Note 2)
|
|
|
-
|
|
|
|
11,745
|
|
|
|
|
|
|
|
|
|
|
Note payable, principal balance of $75,000, unsecured, bearing 10% annual interest, due in full for unpaid principal and interest on or before June 30, 2016 (P/Note 3)
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
$
|
148,233
|
|
|
$
|
159,978
|
|
Less: debt discount
|
|
|
(9,774
|
)
|
|
|
(15,639
|
)
|
Notes payable
|
|
$
|
138,459
|
|
|
$
|
144,339
|
|
Notes payable - current portion
|
|
$
|
138,459
|
|
|
$
|
144,339
|
|
Notes payable - long term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Debt discount - current portion
|
|
$
|
9,774
|
|
|
$
|
15,639
|
|
Debt discount - long term portion
|
|
$
|
-
|
|
|
$
|
-
|
|
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
P/Note 1
On June 18, 2014, the Company executed a promissory note (the "P/Note 1") with a stockholder lender in the principal amount of $40,000. The terms of the P/Note 1 require the Company to make (a) monthly interest only payments (5% annual rate) starting on September 18, 2014; (b) twenty-four (24) payments of $3,290 each, including principal and interest, beginning May 18, 2015 through April 18, 2017, at which time the entire principal amount, plus any and all accrued interest shall be due and payable; and, (c) in the event of an investment or series of related investments of at least $5,000,000 before April 18, 2017, then the entire principal balance and all accrued and unpaid interest shall be due in full in addition to a $5,000 prepayment penalty. In connection with the issuance of P/Note 1, the Company has recorded a debt discount of $33,233 applied to normalize interest to 5% which will be amortized as interest expense over the life of the P/Note 1. The Company is in default in making its note payments as of June 30, 2016 and the note holder has not made a demand for the past due payments. The Company has recognized interest expense of $2,932 and $5,865 for amortization of debt discount related to P/Note 1 for the three months and six months ended June 30, 2016, and $2,932 and $5,865 for the same comparable periods in 2015. The unamortized portion of debt discount was $9,774 and $15,639 at June 30, 2016 and December 31, 2015, respectively. In addition, the Company has recorded an interest expense of $500 and $643 for the three months and six months ended June 30, 2016, and $487 and $987 for the same comparable periods in 2015. The Company paid $841 in interest payments for the six months ended June 30, 2016. Accrued interest on P/Note 1 was $2,434 and $2,632 at June 30, 2016 and December 31, 2015, respectively.
P/Note 2
On May 23, 2013, the Company executed a promissory note (the "P/Note 2") with a stockholder in the principal amount of $53,000. The terms of the P/Note 2 required the Company to make (a) a principal payment of $3,000 on or before June 6, 2013, and (b) fifteen (15) monthly payments of $3,790 each, including principal and interest, beginning February 2014 through April 2015, at which time the entire principal amount, plus any and all accrued interest was due and payable. On March 30, 2015, the Company and the shareholder mutually agreed to extend the due date of payment of the P/Note 2 to April 1, 2016. During the six months ended June 30, 2016, the Company made note payments of principal of $11,745 and interest payments of $7,114. The Company has made both principal and accrued interest in full settlement of P/Note 2. The Company has recorded interest expense of $920 and $920 on P/Note 2 for the three months and six months ended June 30, 2016, and $920 and $1,829 for the same comparable periods in 2015. The Company paid $7,114 in interest payments for the six months ended June 30, 2016. Accrued interest on P/Note 2 was $0 and $6,194 at June 30, 2016 and December 31, 2015, respectively.
In conjunction with the execution of P/Note 2, the Company agreed to issue 100,000 shares of restricted common stock at its fair value of $30,000 to the stockholder on May 23, 2014, as an additional consideration and not as additional interest. In connection with the issuance of the common stock pursuant to P/Note 2, the Company recorded a debt discount in the amount of $30,000 which was being amortized to interest expense over the life of the Note. The Company recorded interest expense of $0 and $0 as the amortization of debt discount related to P/Note 2 for the three months and six months ended June 30, 2016, and $0 and $4,091 for the same comparable periods in 2015. The net book value of the unamortized portion of the debt discount was $0 at both June 30, 2016 and December 31, 2015, respectively.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
P/Note 3
On December 22, 2015, the Company executed a promissory note (P/Note 3) to pay a third party a commitment fee of $50,000 and legal fees of $25,000 for a total consideration of $75,000 in connection with an offering of common stock. The third party agreed to commit to purchase up to $5 million worth of common stock over a period of time terminating on the earlier of (i) 24 months from the date on which the agreement was executed and delivered by the Company and the third party, or (ii the date on which the third party has purchased the aggregate maximum purchase of $5 million. The promissory note bears an interest at the rate of 10% per annum. Payment of all amounts due under P/Note 3, principal and interest, is due on or before June 30, 2016. The Company is in default of the terms of P/Note 3 and the note holders has not made a demand for the past due payments. The Company has recorded the principal amount of the promissory note of $75,000 as a deferred asset upon execution of the promissory note and which will be offset as fee for capital raise against the additional paid in capital when capital is raised by the third party. If unsuccessful, the amount will be charged to expense. As of the date of this filing the agreement is still valid. The Company has recorded an interest expense of $1,870 and $3,740 for the three months and six months ended June 30, 2016. Accrued interest on P/Note 3 was $3,925 and $185 at June 30, 2016 and December 31, 2015, respectively.
The Company has recorded total interest expense including amortization of debt discount, on P/Note 1, P/Note 2 and P/Note 3 of $5,302 and $11,167 for the three months and six months ended June 30, 2016, and $3,713 and $12,769 for the same comparable periods in 2015. The Company has made interest payments of $7,955 and $626 for the six months ended June 30, 2016 and 2015, and recorded accrued interest of $6,358 and $9,012 on P/Note 1, P/Note 2 and P/Note 3 as of June 30, 2016 and December 31, 2015, respectively.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable consist of:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Convertible note payable to a third party, principal balance of $50,000, secured, bearing interest of 12%, due on May 17, 2016 (CPN 1 Note)
|
|
$
|
12,538
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable to a third party, principal balance of $86,000, secured, bearing annual interest at 6%, due on January 28, 2017 (CPN 2 Note)
|
|
|
86,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable to a third party, principal balance of $86,000, secured, bearing annual interest at 6%, due on January 28, 2017 (CPN 3 Note)
|
|
|
86,000
|
|
|
|
-
|
|
|
|
|
185,538
|
|
|
|
50,000
|
|
Less: debt discounts
|
|
|
(121,762
|
)
|
|
|
(27,426
|
)
|
Convertible notes payable, net
|
|
$
|
62,776
|
|
|
$
|
22,574
|
|
Less: current portion
|
|
$
|
(62,776
|
)
|
|
$
|
(22,574
|
)
|
Convertible notes payable, non-current
|
|
$
|
-
|
|
|
$
|
-
|
|
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
Convertible Promissory Note (the "CPN 1 Note")
On August 17, 2015, the Company received $45,000 from a third party investor against a $50,000 Convertible Promissory Note (the "CPN 1" Note) executed on August 17, 2015. The CPN 1 Note bears an interest rate of 10% per annum. The maturity date of the CPN 1 Note is May 17, 2016 and is the date upon which the principal sum of this promissory note, as well as any unpaid interest and other fees, shall be due and payable. The lender has the right at any time after the effective date, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into shares of fully paid and non-assessable shares of common stock of the Company as per the conversion formula: Number of shares receivable upon conversion equals the dollar conversion amount divided by the conversion price. The conversion price is the lessor of 55% of the lowest trade price in the 25 trading days previous to the conversion date.
In connection with the issuance of the CPN 1 Note, the Company recorded an original issuance debt discount ("OID") in the amount of $5,000 which will be amortized to interest expense over the term of the draw of nine months. In accordance with ASC 815, the Company recognized a debt discount related to the bifurcated embedded conversion option derivative liability in the amount of $50,000 which will be amortized to interest expense over the term of the draw and an initial change in fair value of $3,307 for a total initial embedded conversion option liability of $53,307. On February 17, 2016, the Company issued 108,403 shares of its common stock to the third party investor pursuant to a conversion notice under the terms of CPN 1 Note. Pursuant to the conversion notice, the investor converted $12,521 of the principal and interest of CPN 1 Note into 108,403 shares of our common stock valued at $0.1155 per share. On March 14, 2016, the Company issued 952,203 shares of its common stock to the third party investor pursuant to a conversion notice under the terms of CPN 1 Note. Pursuant to the conversion notice, the investor converted $5,237 of the principal of CPN 1 Note into 952,203 shares of our common stock valued at $0.0055 per share. On April 29, 2016, the Company issued 1,432,999 shares of its common stock to the third party investor pursuant to a conversion notice under the terms of CPN 1 Note. Pursuant to the conversion notice, the investor converted $19,704 of the principal of CPN 1 Note into 1,432,999 shares of our common stock valued at $0.0165 per share.
For the three months and six months ended June 30, 2016, the Company has recorded interest expense of $469 and $1,544 on the CPN 1 Note, interest expense of $741 and $2,426 related to the amortization of the OID and $8,148 and $25,000 related to the amortization of the embedded conversion option liability discount and change in fair value of embedded conversion option liability of $40,756. The CPN 1 Note balance was $12,538 and $50,000 at June 30, 2016 and December 31, 2015, respectively, embedded conversion option liability of CPN 1 Note was $33,056, unamortized debt discount was $0 and $5,000, unamortized embedded conversion option liability discount was $0 and $25,000, and accrued interest of $3,393 and $1,849 at June 30, 2016 and December 31, 2015, respectively.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
Convertible Promissory Note (the "CPN 2 Note")
On February 04, 2016, the Company closed and funded a financing transaction by entering into a Securities Purchase Agreement (the "
Purchase Agreement
") with a third party (the "Investor"). Pursuant to the Purchase Agreement, the Investor purchased from the Company a Convertible Promissory Note (the "CPN 2 Note", and together with the Purchase Agreement, the "
Transaction Documents
") in the aggregate principal amount of $86,000 (the "
Principal Amount
"), and the Company received net proceeds of $74,900 on February 4, 2016.
The Principal Amount bears interest at 6% per annum. All outstanding principal and accrued interest on the CPN 2 Note is due and payable on the maturity date, which is January 28, 2017. Any amount of principal or interest that is due under the CPN 2 Note, which is not paid by the maturity date, will bear interest at the rate of 24% per annum until it is paid. Further, the Company is obligated to reduce the Principal Amount by 50% on or before July 28, 2016. Should the Company fail to do so, then outstanding principal amount will be increased by 200%. The Principal Amount was doubled due to the failure to timely make the payment.
The Note is convertible into shares of the Company's common stock at any time at the discretion of the Investor at a conversion price per share equal to the lesser of: (a) the closing price of the Common Stock on the day before the conversion; or, (b) 50% of the lowest trading price for the common stock during the 30-days of trading ending on the latest complete trading day prior to the date of conversion. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends and other similar transactions and subject to the terms of the Transaction Documents. The Company agreed to reserve that number of shares of common stock equal to 70% of our authorized shares of common stock not otherwise issued.
The CPN 2 Note may be repaid in whole at any time. The repayment amount is subject to a premium on the outstanding principal balance of 150%. If the Company fails to meet its obligations under the terms of the CPN 2 Note, the promissory note shall become immediately due and payable and subject to penalties provided for in the CPN 2 Note.
In connection with the issuance of the CPN 2 Note, the Company recorded an original issuance debt discount ("OID") in the amount of $11,100 which will be amortized to interest expense over the term of the draw of 357 days. In accordance with ASC 815, the Company recognized a debt discount related to the bifurcated embedded conversion option derivative liability in the amount of $86,000 which will be amortized to interest expense over the term of the draw and an initial change in fair value of $10,995 for a total initial embedded conversion option liability of $96,995. For the three months and six months ended June 30, 2016, the Company has recorded interest expense of $1,286 and $2,078 on the CPN 2 Note, interest expense related to the amortization of the OID discount of $2,829 and $4,571, interest expense related to the amortization of the embedded conversion option liability discount of $21,922 and $35,412, and change in fair value of embedded conversion option liability of $232,356. At June 30, 2016, the principal balance of CPN 2 Note was $86,000, embedded conversion option liability of CPN 2 Note was $318,356, unamortized OID discount was $6,529, unamortized embedded conversion option liability discount was $50,588, and accrued interest was $2,078.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
Convertible Promissory Note (the "CPN 3 Note")
On February 29, 2016, the Company closed and funded a financing transaction by entering into a Securities Purchase Agreement (the "
Purchase Agreement
") with the same third party (the "Investor") who also executed CPN 2 Note. Pursuant to the Purchase Agreement, the Investor purchased from the Company a Convertible Promissory Note (the "CPN 3 Note"), and together with the Purchase Agreement, the "
Transaction Documents
") in the aggregate principal amount of $86,000 (the "
Principal Amount
"), and the Company received net proceeds of $74,900 on February 29, 2016.
The Principal Amount bears interest at 6% per annum. All outstanding principal and accrued interest on the CPN 3 Note is due and payable on the maturity date, which is March 1, 2017. Any amount of principal or interest that is due under the CPN 3 Note, which is not paid by the maturity date, will bear interest at the rate of 24% per annum until it is paid. Further, the Company is obligated to reduce the Principal Amount by 50% on or before July 28, 2016. Should the Company fail to do so, then outstanding principal amount will be increased by 200%. The Principal Amount was doubled due to the failure to timely make the payment.
The Note is convertible into shares of the Company's common stock at any time at the discretion of the Investor at a conversion price per share equal to the lesser of: (a) the closing price of the Common Stock on the day before the conversion; or, (b) 50% of the lowest trading price for the common stock during the 30-days of trading ending on the latest complete trading day prior to the date of conversion. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends and other similar transactions and subject to the terms of the Transaction Documents. The Company agreed to reserve that number of shares of common stock equal to 70% of our authorized shares of common stock not otherwise issued.
The CPN 3 Note may be repaid in whole at any time. The repayment amount is subject to a premium on the outstanding principal balance of 150%. If the Company fails to meet its obligations under the terms of the CPN 2 Note, the promissory note shall become immediately due and payable and subject to penalties provided for in the CPN 3 Note.
In connection with the issuance of the CPN 3 Note, the Company recorded an original issuance debt discount ("OID") in the amount of $11,100 which will be amortized to interest expense over the term of the draw of one year. In accordance with ASC 815, the Company recognized a debt discount related to the bifurcated embedded conversion option derivative liability in the amount of $86,000 which will be amortized to interest expense over the term of the draw and an initial change in fair value of $11,734 for a total initial embedded conversion option liability of $97,734. For the three months and six months ended June 30, 2016, the Company has recorded interest expense of $1,286 and $1,725 on the CPN 3 Note, interest expense related to the amortization of the OID discount of $2,767 and $3,710, interest expense related to the amortization of the embedded conversion option liability discount of $21,441 and $28,745, and change in the fair value of embedded conversion option liability for six months ended June 30, 2016 of $236,204. At June 30, 2016, the principal balance of CPN 3 Note was $86,000, embedded conversion option liability on CPN 3 Note was $322,204, unamortized original issuance debt discount was $7,390, unamortized embedded conversion option liability discount was $57,255, and accrued interest was $1,725.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
The Company has recorded a total interest expense of $3,042 and $5,347, on the principal balances of CPN 1 Note, CPN 2 Note and CPN 3 Note, for the three months and six months ended June 30, 2016 and $0 for the same comparable periods in 2015. In addition, the Company has recorded interest expense for the three months and six months ended June 30, 2016, relating to (i) amortization of OID discount of $6,338 and $10,707, and (ii)
amortization of the embedded conversion option liability discount of $51,511 and $89,157.
The Company recorded interest expense of $0 relating to the above for the three and six months ended June 30, 2015. The Company has recorded accrued interest on all three convertible notes of $7,196 and $1,849 as of June 30, 2016 and December 31, 2015, respectively.
NOTE 6 - DERIVATIVE FINANCIAL INSTRUMENTS
Under the provisions of ASC 815-40, convertible instruments issued by the Company qualify for derivative treatment due to the variable conversion formula (Note 5). The embedded conversion features of the convertible note is bifurcated and recorded as a liability which is revalued at fair value each reporting date. If the fair value of the embedded conversion feature exceeds the face value of the related debt, net of other discounts, the excess is recorded as a change in fair value on the issuance date. Embedded conversion features are valued at their fair value, rather than by the intrinsic value method.
The Company calculated the estimated fair values of the liabilities for embedded conversion feature at June 30, 2016 with the Black-Scholes option pricing model using the closing price of the Company's common stock at each respective date and the ranges for volatility, expected term, and risk free interest indicated in the table below. As a result, the Company recorded a change in the fair value of the liabilities for embedded conversion option derivative instruments for the six months ended June 30, 2016 of $509,315 which was included in Other Income (Expenses) (See Note 2 Fair Value Measurements) in the accompanying Condensed Consolidated Statements of Operations.
The fair market value of the Company's common stock on February 4, 2016, February 29, 2016, March 31, 2016, April 29, 2016 and June 30, 2016 was $0.30, $0.21, $0.04, $0.05 and $0.06 per share, respectively.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
Embedded Conversion Options
|
|
Black-Scholes Model Assumptions
|
|
|
During The Six Months Ended June 30, 2016
|
Annualized volatility
|
|
82.58% - 365.16%
|
Expected term
|
|
0.00 – 1.00 year
|
Risk free interest rate
|
|
0.32% - 0.52%
|
A significant factor which impacted the fair market value of the derivative liability was the significant difference between the fair market value of the Company's common stock of $0.06 per share and the conversion price of $0.0165 per share at June 30, 2016. The conversion price is based upon the lowest trade within the previous 25 days multiplied by 55% from the fair value date ($0.03X55%= $0.0165). Thus, the valuation is highly dependent upon the price of these trades and the fair market value of the Company's common stock at each measurement date.
NOTE 7 – RELATED PARTY TRANSACTIONS
In April 2010, the Company entered into a verbal agreement with its executive director for providing business consulting and marketing services to the Company. No fixed compensation was agreed at the time of the verbal agreement. On November 14, 2014, the executive director resigned from his position and entered into a separation agreement which provided for, among other covenants and conditions, a mutual release of all claims between the Company and its executive director. The executive director was previously allotted 13,000,000 shares of the Company's common stock. Pursuant to the separation agreement, the executive agreed to retain 1,000,000 shares of common stock, and the Company had the sole discretion to determine the disposition of the remaining 12,000,000 shares of common stock. The Company has allocated these 12,000,000 shares of common stock as follows: (i) 6,125,000 shares of common stock have been reallocated to other persons and the Company has recorded an expense of $3,062,500 upon their issuance, (ii) 5,000,000 shares of common stock were cancelled and returned to the status of authorized and unissued shares, and (iii) the remaining 875,000 shares of common stock to remain issued and held in treasury as of June 30, 2016 (See Note 9). The Company made no cash payments to the executive director for consulting fees for the three months and six months ended June 30, 2016 and 2015, respectively.
The Company has engaged an entity owned by the Chief Executive Officer/Director ("Officer") of the Company to provide business advisory, consulting, and legal services. The Company has recorded and paid legal and professional fees of
$1,000 and $39,000 to this entity for the three months and six months ended June 30, 2016 and $2,500 and $37,000 for the same comparable periods in 2015. Payments are made to this entity as the funds are available. The Company is indebted to this entity $12,500 and $0 as of June 30, 2016 and December 31, 2015, respectively. In addition, the Company has made no payments and $2,300 in payments to the Officer's family members for the three months and six months ended June 30, 2016 for performing services for the Company. No payments were made to the Officer's family members for performing services for the three months and six months ended June 30, 2015.
The Officer has occasionally provided short term advances to the Company for its working capital needs. The short term advances are non-interest bearing, unsecured and due on demand. The Company is indebted to the Officer $22,500 due and payable as of June 30, 2016 and December 31, 2015, respectively.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Settlement of litigation
The Company entered into an agreement for public relations services (the "Agreement") with an unrelated third party ("DLC") in September 2010. The Company disputed the quality of the services rendered and failed to tender final payment under the Agreement. DLC initiated legal action against the Company in January 2012 for collection under the Agreement. The Company did not have the resources to contest the action, so a default judgment was entered against the Company in favor of DLC in July 2012 in the amount of $14,425. Thereafter, DLC sought to collect on the judgment, and the total amount claimed by DLC grew to over $25,000 as DLC was entitled to collect attorney's fees under the Agreement.
In October 2013, the entire Agreement with DLC was negotiated and settled, requiring the Company to pay DLC $3,000 in November 2013 and $1,000 per month for the next 12-month period. The Company agreed not to contest DLC's ownership of 80,000 shares of the Company's stock. As of June 30, 2016 and December 31, 2015, the remaining liability on the settlement of $7,000 is included in accounts payable in accompanying consolidated financial statements. The Company plans on paying DLC for the months of May 2014 through November 2014, which DLC has yet to demand.
Legal Costs and Contingencies
In the normal course of business, the Company incurs costs to hire and retain external legal counsel to advise it on regulatory, litigation and other matters. The Company expenses these costs as the related services are received.
If a loss is considered probable and the amount can be reasonable estimated, the Company recognizes an expense for the estimated loss. If the Company has the potential to recover a portion of the estimated loss from a third party, the Company makes a separate assessment of recoverability and reduces the estimated loss if recovery is also deemed probable.
NOTE 9 – STOCKHOLDERS' EQUITY
The Company's capitalization at June 30, 2016 was 300,000,000 authorized common shares with a par value of $0.001, and 10,000,000 authorized preferred shares with a par value of $0.001.
Common stock
On February 17, 2016, the Company issued 108,403 shares of its common stock to a third party investor pursuant to a conversion notice under the terms of a convertible promissory note.
Pursuant to the conversion notice, the investor converted $12,521 of the principal and interest of the convertible promissory note into 108,403 shares of its common stock valued at $0.1155 per share.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
On March 14, 2016, the Company issued 952,203 shares of its common stock to the third party investor pursuant to a conversion notice under the terms of
convertible promissory note
. Pursuant to the conversion notice, the investor converted $5,237 of the principal of
convertible promissory note
into 952,203 shares of our common stock valued at $0.0055 per share.
On April 29, 2016, the Company issued 1,432,999 shares of its common stock to the third party investor pursuant to a conversion notice under the terms of
convertible promissory note
. Pursuant to the conversion notice, the investor converted $19,704 of the principal of
convertible promissory note
into 1,432,999 shares of our common stock valued at $0.0165 per share.
Warrants
On April 14, 2010, the Company granted three individuals, warrants to purchase 2,500,000 shares of common stock at an exercise price of $0.25 per share as compensation in connection with the individuals providing introductions for raising capital for the Company. The warrants have a six year term and expire in April 2016. The fair value of 2,500,000 warrants at the original issue date was estimated to be $1,077,927 using a Black-Scholes option pricing model with an expected life of 6 years, a risk free interest rate of 2.96%, a dividend yield of 0%, and an expected volatility of 100%. The expected volatility was estimated to be 100% since the Company's stock is not traded and no historical volatility data is available. As these services were provided as part of the Company's equity funding, the value of the warrants were recorded within equity as part of the accounting for the related equity transactions. The warrants expired on April 14, 2016. There have been no other grants of warrant instruments through June 30, 2016.
The Company has not established a stock option plan nor has issued any stock options through June 30, 2016.
As a result of all common stock issuances and cancellations, the total common shares issued at June 30, 2016 were 50,274,070 of which 49,399,070 shares were outstanding, and the remaining 875,000 shares were held in treasury.
Preferred Stock
At June 30, 2016, the Company had no shares of preferred stock issued or outstanding.
NOTE 10 - CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company has not experienced any losses related to this in any such accounts. The Company's bank balances did not exceed FDIC insured amounts as of June 30, 2016 and December 31, 2015, respectively.
EMAV HOLDINGS, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended
June 30, 2016 and 2015
(Unaudited)
NOTE 11 – SUBSEQUENT EVENTS
Management has evaluated subsequent events and transactions that occurred through the date and time our financial statements were available to be issued as follows:
On August 4, 2016, the Company issued 375,000 shares of its common stock to a third party investor pursuant to a conversion notice under the terms of CPN1 Note. Pursuant to the conversion notice, the investor converted $3,600 of the principal of CPN1 Note into 375,000 shares of common stock valued at $0.0096 per share.
On August 17, 2016, the Company closed and funded a financing transaction by entering into a Subscription Agreement (the "Subscription Agreement") with a third party (the "Third Party"). Pursuant to the Subscription Agreement, the Third Party purchased from the Company a Convertible Debenture (the "Debenture") in the aggregate Principal Amount of $200,000. On August 18, 2016, the Company received net cash proceeds of $150,000 from the Third Party, and paid off the total outstanding principal balance and accrued interest to date, on CPN 1 Note and made a payment of $100,000 to reduce the amount outstanding on CPN 2 Note. The Principal Amount bear interest at the rate of 10% per annum. All outstanding principal and accrued interest on the Debenture is due and payable on the maturity date of July 29, 2018 or convertible at any time at the Third Party's option at $0.02 per common share. Under the same transaction, the Company also issued to the Third Party a Warrant to purchase 300,000 shares of common stock at an exercise price of $0.08 per share. The Warrant has a five year term and expires on August 14, 2021. The Warrant can also be exercised on a cashless basis. The Debentures and the Warrant is issued to the Third Party in a transaction not registered under. The Company is still determining the impact of this transaction on the financial statements.