CONVERTIBLE DEBENTURES AND NOTES | 12 Months Ended |
Dec. 31, 2014 |
Debt Disclosure [Abstract] | |
CONVERTIBLE DEBENTURES | NOTE 6: CONVERTIBLE DEBENTURES AND NOTES |
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At December 31, 2014 and 2013, the Company had convertible debt consisting of the following: |
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| | December 31, | | | December 31, | |
2014 | 2013 |
Convertible debt | | $ | 168,000 | | | $ | 108,000 | |
Plus: put premium | | | 35,000 | | | | 33,000 | |
Less: debt discount | | | (11,727 | ) | | | (35,294 | ) |
Convertible debt, net | | $ | 191,273 | | | $ | 105,706 | |
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Convertible debt principal payments of $108,000 were in default on maturity date as of December 31, 2014 and $60,000 was in default subsequent to year end as of the issuance date of these consolidated financial statements. |
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On May 31, 2013, the Company issued a convertible debenture for the sum of $100,000 in exchange for cash. The Company agreed to accrue interest on the outstanding principal at the rate of 12% per annum beginning on May 31, 2013 and due on the maturity date of August 30, 2013. The Company has the right of prepayment at any time. Immediately following the date on which the Company mergers with or becomes a public company, the holder of the convertible debenture is entitled to convert all amounts due into shares of the entity which succeeds the Company (the "Successor Entity") at the conversion price of $132.00 per share. In addition, the convertible debenture automatically converts into common stock of the Successor Entity at $132.00 per share once the Company mergers with or becomes a public company and has entered into a firm commitment for no less than $50,000,000 of debt or equity financing. There was no beneficial conversion feature ("BCF") recorded at May 31, 2013 because the per share conversion price was greater than the fair value of the common stock per share. On October 3, 2013, the holder of this note, exercised the right to convert the amount of $100,000 plus accrued interest of $2,992 into 781 shares of common stock at a rate of $132.00 per share per the terms of the agreement. |
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In August 2013, the Company entered into three convertible debentures for the total sum of $30,000. The Company agreed to pay interest and outstanding principal at the rate of 8% per annum beginning on August 12, 2013 and due on the maturity date of one year from the date of the agreements. Beginning on the respective dates of issuance of the debentures, the Company also had the right of prepayment at any time and the holder had the right to convert the outstanding debt into shares of the Company's common stock at a conversion price using the volume weighted average price of the Company's common stock over seven trading days prior to the date of conversion then multiplying the result by 50%. Under ASC 480 "Distinguishing Liabilities from Equity", the debentures were considered stock settled debts since any future shares of common stock issued upon conversion will have a fair market value of $60,000. Therefore, the Company recorded interest expense of $30,000 on the dates of the debentures to reflect the put premium. In November and December 2013, the Company converted debt from these three convertible debentures totaling $30,000 and accrued interest of $536 into 416 shares of common stock at the conversion rate of $244.00, $28.00 and $448.00 per share per the terms of the agreements. |
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In October and November 2013, the Company entered into nine separate convertible debentures for the total sum of $110,000. The Company agreed to pay interest and outstanding principal at the rate of 8% per annum on the total amount of these debentures and an additional thirty-two percent (32%) strictly in common stock on two of these debentures totaling $20,000 beginning on the date of each agreement and due on the maturity date of one year from the date of the agreements. Beginning on the date of issuance, the Company has the right of prepayment at any time. Beginning on the date of issuance, the holder also has the right to convert all of the outstanding debt into shares of the Company's Common Stock at the conversion price using the volume weighted average price of the Company's Common Stock over seven trading days prior to the conversion date then multiplying the result by 50%. These debentures were considered stock-settled debt since any future stock issued upon conversion will have a fair market value of $220,000. The Company therefore accreted a premium of $110,000 into interest expense immediately since these debentures are convertible on the issuance date. In November and December 2013, the Company converted debt from five of these convertible debentures totaling $50,000 and accrued interest of $112 into 112 shares of the Company's common stock at the conversion rate of $448.00 per share and two of these convertible debentures totaling $40,000 and accrued interest of $381 into 1,388 common shares at the conversion rate of $29.20 per share per the terms of the agreements. At December 31, 2014 and 2013, the outstanding principal balance due pursuant to these convertible debentures amounted to $20,000 and $20,000, respectively, and were in default. |
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On October 29, 2013, the Company issued a convertible debenture for the sum of $75,000. The Company agreed to accrue interest on outstanding principal at the rate of 25% per annum beginning on October 29, 2013 and payable in quarterly payments at the end of each calendar quarter until the maturity date of February 25, 2014. Upon maturity, the Holder is entitled to convert all amounts due into shares of the Company's common stock at the conversion price of $132.00 per common share, or to request repayment in cash. A BCF value was recorded as debt discount in the amount of $75,000. Since the actual intrinsic value exceeds the face value of the debt, the BCF equals the amount of the convertible debt. The Company recorded $39,706 of amortization of the debt discount into interest expense at December 31, 2013. In February 2014, the maturity date of the convertible debenture was extended until August 31, 2014. During the year ended December 31, 2014 the remaining debt discount of $35,294 was amortized into interest expense. At December 31, 2014 and 2013, the outstanding principal balance due pursuant to this convertible debenture amounted to $75,000 and $75,000, respectively, and were in default. |
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In October 2013, the Company issued two convertible debentures for the total sum of $13,000. The Company agreed to pay interest and outstanding principal at the rate of 8% in cash and 17% in common stock per annum on the total amount of these debentures beginning on the date of each agreement and due on the maturity date of one year from the date of the agreements. Beginning on the date of issuance, the Company has the right of prepayment at any time. Beginning on the date of issuance, the holder also has the right to convert all of the outstanding debt into shares of the Company's common stock at the conversion price using the volume weighted average price of the Company's common stock over seven trading days prior to the conversion date then multiplying the result by 50%. These notes were considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $26,000. The Company therefore accreted a premium of $13,000 into interest expense immediately since these debentures are convertible on the issuance date. At December 31, 2014 and 2013, the outstanding principal balance due pursuant to this convertible debenture amounted to $13,000 and $13,000, respectively, and were in default. |
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In December 2013, the Company issued a convertible debenture in the amount of $10,000 which was originally received in September 2013 as a short-term loan from a related party (See Note 5), and two separate convertible debentures in the aggregate principal amount of $50,000. The Company agreed to pay interest and outstanding principal at the rate of 8% per annum beginning on the respective dates of the agreements, and due on the maturity date of one year from the dates of the agreements. Beginning on the respective dates of issuance of the debentures, the Company also has the right of prepayment at any time and the holder has the right to convert the outstanding debt into shares of the Company's common stock at a conversion price using the volume weighted average price of the |
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Company's common stock over seven trading days prior to the date of conversion then multiplying the result by 50%. Under ASC 480 "Distinguishing Liabilities from Equity", the debentures were considered stock settled debts since any future shares of common stock issued upon conversion will have a fair market value of $120,000. Therefore, the Company recorded interest expense of $60,000 on the dates of the debentures to reflect the put premium. On December 12, 2013, the Company converted debt from these three convertible debentures totaling $60,000 and accrued interest of $194 into 2,062 shares of the Company's common stock at the conversion rate of $29.20 per share per the terms of the agreements. |
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In March 2014, the Company issued a convertible debenture for $2,000. The Company agreed to pay interest and outstanding principal at the rate of eight percent (8%) per annum on the total amount of the debenture beginning on the date of the agreement and due on the maturity date of one year from the date of the agreement. Beginning on the date of issuance, the Company has the right of prepayment at any time. Beginning on the date of issuance, the holder also has the right to convert all of the outstanding debt into shares of the Company's Common Stock at the Conversion Price using the volume weighted average price of the Company's Common Stock over seven (7) trading days prior to the Conversion Date then multiplying the result by 50%. These notes will be considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $4,000. The Company therefore accreted a premium of $2,000 into interest expense immediately since these notes are convertible on the issuance date. At December 31, 2014, the outstanding principal balance due pursuant to this convertible debenture amounted to $2,000. |
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On March 21, 2014, the Company issued a convertible debenture for $17,452 in exchange for settlement of accounts payable totaling $18,259. The Company agreed to pay interest and outstanding principal at the rate of 8% per annum on the total amount of the debenture beginning on the date of the agreement and due on the maturity date of one year from the date of the agreement. Beginning on the date of issuance, the Company has the right of prepayment at any time. Beginning on the date of issuance, the holder also has the right to convert all of the outstanding debt into shares of the Company's common stock at the conversion price using the volume weighted average price of the Company's common stock over seven trading days prior to the conversion date then multiplying the result by 50%. These debentures were considered stock settled debt since any future stock issued upon conversion will have a fair market value of $34,904. The Company therefore accreted a premium of $17,452 into interest expense immediately since this debenture is convertible on the issuance date. In March 2014 and May 2014, this debenture was converted into an aggregate of 2,363 shares of common stock (See Note 8). |
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On August 13, 2014 the Company issued a convertible note for $58,000 from a Lender (the "Lender") in exchange for a price of $58,000 less an original issue discount of $5,000 and legal fees of $3,000. The convertible notes bears interest at the rate of 10% per annum beginning on August 13, 2014 with a maturity date of nine months from the date of the agreement. The Company may make optional prepayment to the Lender of an amount in cash equal to 125% multiplied by the then outstanding balance of this note. The note is unsecured. The note provides for conversion to common stock monthly commencing 90 days from the date of the agreement at a conversion price is $0.05 (the "Lender Conversion Price"). Additionally, beginning on the date that is six months after August 13, 2014 and on the same day of each month thereafter until the Maturity Date (each, an "Installment Date"), the Company shall pay to Lender the applicable Installment Amount due on such date. Payments of each Installment Amount may be made (a) in cash, or (b) by converting such Installment Amount into shares of the Company's common stock. The conversion price for each installment shall be the lesser of (i) the lender conversion Price of $0.05, and(ii) 70% of the average of the three (3) lowest closing bid prices in the twenty trading days immediately preceding the applicable conversion, provided that if at any time the average of the three lowest closing bid prices in the twenty Trading Days immediately preceding any date of measurement is below $0.01, then in such event the then-current conversion factor shall be reduced to 65% for all future Conversions. If the Company, at any time this Note is outstanding, shall sell or issue any Common Stock to the Lender or any third party for a price that is less than the then effective Lender's Conversion Price, then such Lender Conversion Price shall be automatically reduced and only reduced to equal such lower issuance price. The Company has established a reserve of a minimum of 37,500 common shares in connection with this convertible note agreement. Due to the price protection on the lender's conversion price, the Company has classified this note as a derivative financial instrument in accordance with ASC Topic 815, Derivatives and Hedging, requiring bifurcation from the note which is accounted for as a derivative liability. The fair value of derivatives granted is calculated using the Black-Scholes method, which requires the use of subjective assumptions including volatility, expected term, risk-free rate, and the fair value of the underlying common stock. Accordingly, at the date of the agreement, the Company recorded, using the Black Scholes method, a debt discount of $15,453 and a derivative liability of $15,453. Debt discount consisting of the original issue discount, legal fees, and fair value derivative liability at the date of the note aggregating $23,453 is being amortized over the term of the note and amounted to $11,727 for the year ending December 31, 2014 and is included in interest expense on the accompanying consolidated statement of operations. On May 29, 2015, the Company received a notice of default from the Lender (see Note 11). |
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For the year ended December 31, 2014, the Company recorded a gain of $5,082 from the change in fair value of derivative liability, and at December 31, 2014, derivative liability amounted to $10,371. |