Convertible Notes Payable | 6 Months Ended |
Nov. 30, 2013 |
Notes to Financial Statements | ' |
Note 7 - Convertible Notes Payable | ' |
At November 30, 2013, convertible notes payable consisted of |
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Date of | | Noteholder | | Interest | | | Maturity | | Principal | | | Unamortized Debt Discount | | | Net Carrying Amount | |
Note | Rate | date | Amount |
6/11/13 | | Asher Enterprises, Inc. | | | 8 | % | | 3/3/14 | | | 32,500 | (a) | | | 19,560 | | | | 12,940 | |
8/1/13 | | Continental Equities, LLC | | | 12 | % | | 8/1/14 | | | 30,000 | (b) | | | 28,550 | | | | 1,450 | |
8/5/13 | | JSJ Investments, Inc. | | | 10 | % | | 2/5/14 | | | 25,000 | (c) | | | 24,811 | | | | 189 | |
8/7/13 | | JMJ Financial Inc. | | | 12 | % | | 8/7/14 | | | 50,000 | (d) | | | 28,610 | | | | 21,390 | |
8/13/13 | | Black Mountain Equities, Inc. | | | 10 | % | | 5/13/14 | | | 50,000 | (e) | | | 41,152 | | | | 8,848 | |
8/26/13 | | Redwood Fund III | | | 12 | % | | 2/28/14 | | | 95,000 | (f) | | | 92,334 | | | | 2,666 | |
9/10/13 | | Asher Enterprises, Inc. | | | 8 | % | | 6/10/14 | | | 32,500 | (a) | | | 32,353 | | | | 147 | |
10/9/13 | | JSJ Investments, Inc. | | | 10 | % | | 4/9/14 | | | 25,000 | | | | 24,234 | | | | 766 | |
10/31/13 | | Iconic Holdings, LLC | | | 10 | % | | 10/31/14 | | | 30,000 | | | | 29,955 | | | | 45 | |
10/31/13 | | Iconic Holdings, LLC | | | 10 | % | | 10/31/14 | | | 14,677 | | | | 101 | | | | 14,576 | |
11/8/13 | | Iconic Holdings, LLC | | | 10 | % | | 11/8/14 | | | 30,000 | | | | 29,955 | | | | 145 | |
11/26/13 | | Asher Enterprises, Inc. | | | 8 | % | | 8/26/14 | | | 42,500 | | | | 34,366 | | | | 8,134 | |
Totals | | | | | | | | | | $ | 457,177 | | | $ | 385,981 | | | $ | 71,196 | |
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Legend |
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(a) | At noteholder’s option, the principal amount (and accrued interest) are convertible into shares of DoMark common stock at a conversion price equal to 55% of the average of the two lowest closing prices during the 15 trading days prior to the notice of conversion. | | | | | | | | | | | | | | | | | | | |
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(b) | At noteholder’s option, the principal amount (and accrued interest) are convertible into shares of DoMark common stock at a conversion price equal to 50% of the average of the three lowest closing prices during the 30 trading days prior to the notice of conversion. | | | | | | | | | | | | | | | | | | | |
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(c) | At noteholder’s option, the principal amount (and accrued interest) are convertible into shares of DoMark common stock at a conversion price equal to the lower of $0.081 or 50% of the average of the three lowest closing prices during the 10 trading days prior to the notice of conversion. | | | | | | | | | | | | | | | | | | | |
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(d) | At noteholder’s option, the principal amount (and accrued interest) are convertible into shares of DoMark common stock at a conversion price equal to the lower of $0.085 or 60% of the lowest closing price during the 25 trading days prior to the notice of conversion. | | | | | | | | | | | | | | | | | | | |
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(e) | At noteholder’s option, the principal amount (and accrued interest) are convertible into shares of DoMark common stock at a conversion price equal to the lower of $0.08 or 50% of the lowest closing price during the 10 trading days prior to the notice of conversion. | | | | | | | | | | | | | | | | | | | |
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(f) | At noteholder’s option, the principal amount (and accrued interest) are convertible into shares of DoMark common stock at a conversion price equal to the lower of $0.0725 or 34% of the lowest closing price during the 20 trading days prior to the notice of conversion. | | | | | | | | | | | | | | | | | | | |
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(g) | At noteholder’s option, the principal amount (and accrued interest) are co | | | | | | | | | | | | | | | | | | | |
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At August 31, 2013 and May 31, 2013, accrued interest payable on convertible notes payable (included in accounts payable and accrued expenses) was $0 and $0, respectively. |
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For the three months ended August 31, 2013, interest expense includes accretion of debt discounts (relating to beneficial conversion features) on convertible notes payable of $3,518. |
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Derivative Liability for Convertible Notes Payable |
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The convertible notes issued in 2013 (with a total principal amount of $354,000) all contain a provision that the conversion price is to be reduced in the event that we are deemed to have sold or issued any shares of common stock for a consideration price per share less than the conversion price. Accordingly, in accordance with EITF Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”, we charged the option value of these convertible notes at the respective dates of issuance (totaling $544,962) to debt discounts for the intrinsic value of the embedded beneficial conversion features (limited to the principal amount of the notes) in these notes (totaling $330,196), which are expensed over the terms of the respective notes to increase the carrying values to principal amounts, and to “income (loss) from revaluation of derivative liability for convertible notes” ($214,766) and credited $544,962 to “derivative liability for convertible notes payable”. Each quarter, the option value of these convertible notes is remeasured and changes are reflected within the “Statement of Operations” as “income (loss) from revaluation of derivative liability for convertible notes”. Option values were calculated using the Black-Scholes option pricing model and the following assumptions: Stock prices ranging from $________to $________ per share, strike prices ranging from $________ to $________ per share; risk-free interest rates ranging from __% to __%, terms ranging from ___days to ___days, and expected volatility ranging from ___% to ___%. |
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Below is a reconciliation of the change in option values from January 30, 2013 to August 31, 2013: |
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| | Principal Amount of Convertible Note Payable | | | Option | | | | | | | | | | | | |
Value | | | | | | | | | | | |
Issuance of convertible notes with EITF 07-05 provision: | | | | | | | | | | | | | | | | | |
January 30,2013 | ($17,256 charged to operations) | | $ | 53,000 | | | $ | 67,256 | | | | | | | | | | | | |
15-Apr-13 | ($9,717charged to operations) | | | 32,500 | | | | 37,658 | | | | | | | | | | | | |
Total | | | | 85,500 | | | | 104,914 | | | | | | | | | | | | |
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Revaluation of derivative liability charged (credited) to operations: | | | | | | | | | | | | | | | | | | | |
Three months ended February 28, 2013 | | | - | | | | - | | | | | | | | | | | | |
Three months ended May 31, 2013 | | | - | | | | 132,664 | | | | | | | | | | | | |
Total | | | - | | | | 132,664 | | | | | | | | | | | | |
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Balance, May 31, 2013: | | | 85,500 | | | | 237,578 | | | | | | | | | | | | |
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Issuance of convertible notes with EITF 07-05 provision: | | | | | | | | | | | | | | | | | | | |
11-Jun-13 | ($6,647 charged to operations) | | | 32,500 | | | | 38,359 | | | | | | | | | | | | |
1-Aug-13 | ($7,703 charged to operations) | | | 30,000 | | | | 37,672 | | | | | | | | | | | | |
5-Aug-13 | ($6,998 charged to operations) | | | 25,000 | | | | 31,967 | | | | | | | | | | | | |
7-Aug-13 | ($30,500 charged to operations) | | | 50,000 | | | | 63,788 | | | | | | | | | | | | |
13-Aug-13 | ($36,359 charged to operations) | | | 50,000 | | | | 81,818 | | | | | | | | | | | | |
26-Aug-13 | ($91,454 charged to operations) | | | 95,000 | | | | 186,444 | | | | | | | | | | | | |
Total | | | 282,500 | | | | 440,048 | | | | | | | | | | | | |
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Conversion of $14,000 principal amount of January 30, 2013 $53,000 convertible note into 389,972 shares of common stock on August 28, 2013 | | | (14,000 | ) | | | (13,727 | ) | | | | | | | | | | | |
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Revaluation of derivative liability charged (credited) to operations: | | | | | | | | | | | | | | | | | | | |
Three months ended August 31, 2013 | | | - | | | | (143,046 | ) | | | | | | | | | | | |
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Balance, August 31, 2013 | | $ | 354,000 | | | $ | 520,853 | | | | | | | | | | | | |