CONVERTIBLE NOTES PAYABLE - RELATED PARTY | 9 Months Ended |
Sep. 30, 2014 |
Convertible Notes Payable - Related Party | ' |
Note 2. CONVERTIBLE NOTES PAYABLE - RELATED PARTY | ' |
As of September 30, 2014, the Company had outstanding the following convertible promissory notes ("Loans"): |
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Date of: | | Conversion | | | | | | | Accrued | | | Total | |
Issuance | | Maturity | | Price | | Status | | Principle | | | Interest | | | Outstanding | |
3/31/13 | | 8/31/13 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | $ | 8,540 | | | $ | 1,144 | | | $ | 9,684 | |
4/25/13 | | 8/31/13 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 25,000 | | | | 2,866 | | | | 27,866 | |
5/21/13 | | 8/31/13 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 25,000 | | | | 2,718 | | | | 27,718 | |
7/31/13 | | 1/31/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 25,500 | | | | 2,509 | | | | 28,009 | |
8/31/13 | | 2/28/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 14,195 | | | | 1,322 | | | | 15,517 | |
9/30/13 | | 3/31/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 7,545 | | | | 638 | | | | 8,183 | |
10/31/13 | | 4/30/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 6,250 | | | | 471 | | | | 6,721 | |
11/30/13 | | 5/30/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 4,309 | | | | 310 | | | | 4,619 | |
12/31/13 | | 6/30/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 8,509 | | | | 551 | | | | 9,061 | |
1/31/14 | | 7/31/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 11,810 | | | | 678 | | | | 12,488 | |
2/28/14 | | 8/31/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 11,479 | | | | 558 | | | | 12,037 | |
3/31/14 | | 9/30/14 | | $ | 1 | | Current - Maturity date extended to 12/31/2014 | | | 11,879 | | | | 514 | | | | 12,392 | |
6/30/14 | | 12/31/14 | | $ | 1 | | Current | | | 51,978 | | | | 1,323 | | | | 53,301 | |
9/30/14 | | 3/31/15 | | $ | 1 | | Current | | | 42,979 | | | | 429 | | | | 43,408 | |
Debt discount - unamortized portion | | | | | (50,516 | ) | | | - | | | | - | |
| | | | | | | | | $ | 204,458 | | | $ | 16,030 | | | $ | 271,004 | |
Number of shares issuable upon exercise of the above debt | | | | | | | | | | | | | 271,004 | |
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The Loans in the table above are all issued to Amalfi Coast Capital, Inc. (“Amalfi”) a private corporation owning in excess of 5% of the Company’s issued and outstanding shares of common stock. Each Loan has identical terms, including a maturity date three to six months from the date of issuance, eight percent (8%) per annum interest rate, no requirement for any payments prior to maturity, and the right to convert the outstanding principle and interest into fully paid and non-assessable shares of the Company's common stock at a fixed conversion price of $1.00 per share. The conversion privilege provides for net share settlement only. Pursuant to ASC 470-20-25-5, the Company determined that due to the market price of the Company's common stock being greater than the conversion price contained in each Loan on the commitment date, each Loan contained a beneficial conversion feature (“BCF”) with an intrinsic value in excess of the face amount of each Loan. The resulting discount to the Loans is recorded to interest expense and amortized over the original maturity term. The Company communicates regularly with the holder who has not expressed a desire to force collection at this time. |
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On September 30, 2014, the Company issued a convertible promissory note (“CPN”) to Amalfi, pursuant to which the Company borrowed $42,979. As a condition to Amalfi’s entry into the CPN, the Company issued the Creditor 200,000 Series A Stock Purchase Warrant (the “Series A Warrant”) allowing the holder to purchase up to 200,000 shares of the Company’s common stock at an exercise price of $0.01 for a period on five (5) years, subject to adjustment as provided therein. The Company first allocated between the CPN and the warrants based upon their relative fair values. The estimated fair value of the warrants issued with the CPN was calculated using the Black-Scholes option pricing model and the following assumptions: market price of common stock - $1.12 per share; estimated volatility – 59.5%; risk free interest rate – 1.78%; expected dividend rate - 0% and expected life - 5.0 years. This resulted in allocating $34,717 to the warrants and $8,262 to the CPN. Next, the intrinsic value of the BCF was computed as the difference between the fair value of the common stock issuable upon conversion of the CPN and the total price to convert based on the effective conversion price. The calculated intrinsic value was $39,874. As this amount resulted in a total debt discount that exceeds the CPN proceeds, the amount recorded for the beneficial conversion feature was limited to $8,262. The resulting $42,979 discount to the CPN is being accreted over the six month term of the CPN using the effective interest method. |
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From November 4, 2013 through January 21, 2014, the Company borrowed amounts totaling $1,870 from an officer, director and shareholder of the Company. The loaned amounts bore interest from 0% to 1%. The principal amount was convertible into shares of common stock at a rate of $1 per share. The Company recorded a debt discount related to the beneficial conversion feature of $954 which was amortized over the life of each of the three loans. During the nine months ended September 30, 2014, the Company repaid the loan in total and fully amortized the remaining debt discount of $499. |
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During the three months ended September 30, 2014, the Company had interest expense – related party of $19,564 of which $4,703 is interest and $14,861 is amortization of the debt discount. During the three months ended September 30, 2013, the Company had interest expense – related party of $55,035 of which $1,870 is interest, $43,023 is amortization of the debt discount and $10,142 as finance cost for debt conversion into shares of LOC-Waterford Ventures and Conner Ventures. During the nine months ended September 30, 2014, the Company had interest expense – related party of $60,543 of which $10,974 is interest and $49,569 is amortization of the debt discount. During the nine months ended September 30, 2013, the Company had interest expense – related party of $81,856 of which $2,734 is interest, $68,980 is amortization of the debt discount and $10,142 as finance cost for debt conversion into shares of LOC-Waterford Ventures and Conner Ventures. |