Convertible Notes | 12 Months Ended |
Dec. 31, 2013 |
Convertible Notes | ' |
Convertible Notes | ' |
NOTE 11 – CONVERTIBLE NOTES |
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On August 19, 2013 the Company issued a $500,000 convertible promissory note (the “Note”) and warrants to purchase shares of common stock to an individual investor. The overall terms of the Note are as follows: |
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| ● | Interest rate: 12% per annum. | | |
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| ● | Due date: September 14, 2015. The Company is to pay the principal amount and all accrued and unpaid interest on or before the due date. | | |
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| ● | Redemption right: Any time the closing price of the Company’s common stock has been at or above $2.00 for 20 consecutive trading days, the Company has the right to redeem all or any part of the principal and accrued interest of the Note, following written notice to the holder of the Note. | | |
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| ● | Optional Conversion: At the option of the holder, the Note may be converted into shares of the Company’s common stock at a conversion price equal to $0.50 per share. | | |
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| ● | Additionally, if the Company elects to exercise the redemption right, the holder has the opportunity to elect to take the cash payment or to convert all or any portion of the Note into shares of the Company’s common stock. | | |
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| ● | The conversion price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. | | |
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| ● | The Note is senior in rank to any other debt held by our officers, directors or affiliates and may not be subordinated to any other debt issued by us without the written consent of the holder. | | |
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| ● | Warrants: The holder of the Note is granted the right through September 30, 2015 to purchase 500,000 additional shares of common stock at $1.00 per share. | | |
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| ● | The Note is secured by all of the mineral ownership and mining rights held by the Company in the Star Mountain Mining District and proceeds and distributions from such assets. | | |
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| ● | The Note is secured by all of the mineral ownership and mining rights held by the Company in the Star Mountain Mining District and proceeds and distributions from such assets. The Note ranks pari passu in right of payment with the other convertible promissory notes executed under the offering. | | |
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| ● | During the time that any portion of this Note is outstanding, if any Event of Default occurs and such Default is not cured by the Company within sixty (60) days of the occurrence of the Event of Default (the “Cure Period”), the amount equal to one hundred fifty percent (150%) of the outstanding principal amount of this Note, together with accrued interest and other amounts owing shall become at the holder’s election, immediately due and payable in cash. The holder at its option has the right, with three (3) business days advance written notice to the Company after the expiration of the Cure Period, to elect to convert the Note into shares of the Company’s common stock pursuant to the Optional Conversion rights disclosed above. | | |
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| ● | The Company’s Consolidated Balance Sheets report the following related to the convertible promissory note: | | |
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| | 31-Dec-13 | |
Principal amount | | $ | 500,000 | |
Unamortized debt discount | | | (370,940 | ) |
Net carrying amount | | $ | 129,060 | |
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For the year ended December 31, 2013, the Company recorded $23,833 of accrued interest expense for the contractual interest related to the convertible promissory note and additional interest expense of $78,198 as amortization of the debt discount. At December 31, 2013, none of the debt had been converted and no warrants to purchase common stock had been exercised. |
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Under the guidance of ASC 470-20 Debt With Conversion and Other Options, the Company recorded the value of the above warrants to purchase 500,000 shares of its common stock. |
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Using the Black-Scholes method, such warrants were valued at $160,1375. The following weighted-average assumptions were used in the Black-Scholes calculation: |
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| | 31-Dec-13 | |
Expected term (years) | | | 2.1 | |
Expected volatility | | | 125.5 | % |
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Risk-free interest rate | | | 0.36 | % |
Dividend yield | | | 0 | % |
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On October 18, 2013 the Company issued another $500,000 convertible promissory note (the “Note”) and warrants to purchase shares of common stock to a second individual investor. The overall terms of the Note are as follows: |
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| ● | Interest rate: 12% per annum. | | |
| | | | |
| ● | Due date: October 31, 2015. The Company is to pay the principal amount and all accrued and unpaid interest on or before the due date. | | |
| | | | |
| ● | Redemption right: Any time the closing price of the Company’s common stock has been at or above $2.00 for 20 consecutive trading days, the Company has the right to redeem all or any part of the principal and accrued interest of the Note, following written notice to the holder of the Note. | | |
| | | | |
| ● | Optional Conversion: At the option of the holder, the Note may be converted into shares of the Company’s common stock at a conversion price equal to $0.50 per share. | | |
| | | | |
| ● | Additionally, if the Company elects to exercise the redemption right, the holder has the opportunity to elect to take the cash payment or to convert all or any portion of the Note into shares of the Company’s common stock. | | |
| | | | |
| ● | The conversion price is subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events. | | |
| | | | |
| ● | The Note is senior in rank to any other debt held by our officers, directors or affiliates and may not be subordinated to any other debt issued by us without the written consent of the holder. | | |
| | | | |
| ● | Warrants: The holder of the Note is granted the right through September 30, 2015 to purchase 500,000 additional shares of common stock at $1.00 per share. | | |
| | | | |
| ● | The Note is secured by all of the mineral ownership and mining rights held by the Company in the Star Mountain Mining District and proceeds and distributions from such assets. The Note ranks pari passu in right of payment with the other convertible promissory notes executed under the offering. | | |
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| ● | During the time that any portion of this Note is outstanding, if any Event of Default occurs and such Default is not cured by the Company within sixty (60) days of the occurrence of the Event of Default (the “Cure Period”), the amount equal to one hundred fifty percent (150%) of the outstanding principal amount of this Note, together with accrued interest and other amounts owing shall become at the holder’s election, immediately due and payable in cash. The holder at its option has the right, with three (3) business days advance written notice to the Company after the expiration of the Cure Period, to elect to convert the Note into shares of the Company’s common stock pursuant to the Optional Conversion rights disclosed above. | | |
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| ● | The Company’s Consolidated Balance Sheets report the following related to the convertible promissory note: | | |
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| | 31-Dec-13 | |
Principal amount | | $ | 500,000 | |
Unamortized debt discount | | | (450,202 | ) |
Net carrying amount | | $ | 49,798 | |
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For the year ended December 31, 2013, the Company recorded $12,833 of accrued interest expense for the contractual interest related to the convertible promissory note and additional interest expense of $49,798 as amortization of the debt discount. At December 31, 2013, none of the debt had been converted and no warrants to purchase common stock had been exercised. |
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Under the guidance of ASC 470-20 Debt With Conversion and Other Options, the Company recorded the value of the above warrants to purchase 500,000 shares of its common stock. |
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Using the Black-Scholes method, such warrants were valued at $209,503. The following weighted-average assumptions were used in the Black-Scholes calculation: |
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| | 31-Dec-13 | |
Expected term (years) | | | 2 | |
Expected volatility | | | 125.5 | % |
Risk-free interest rate | | | 0.33 | % |
Dividend yield | | | 0 | % |
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Aggregate maturities of Convertible Notes in each of the next five years ending December 31st are as follows: |
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2014 | | $ | - | |
2015 | | | 1,000,000 | |
2016 | | | - | |
2017 | | | - | |
2018 | | | - | |
| | $ | 1,000,000 | |