Convertible Note Payable | 3 Months Ended |
Mar. 31, 2015 |
Notes to Financial Statements | |
Note 6 - Convertible Note Payable | Convertible notes payable consist of the following at March 31, 2015 and December 31, 2014, respectively: |
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| | 31-Mar-15 | | | 31-Dec-14 | |
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On February 24, 2015, we entered into a Securities Purchase Agreement with Adar Bays, LLC (“Adar Bays”), pursuant to which we sold to Adar Bays an 8% Convertible Promissory Note in the original principal amount of $44,100.00 (the “First Adar Note”). The Note has a maturity date of February 24, 2016, and is convertible after 180 days into our common stock at the higher of (i) $0.001 cents per share or (ii) 70% of the average of the two (2) lowest closing prices of our common stock for the fifteen (15) trading days prior to receipt of a conversion notice from Adar Bays. The shares of common stock issuable upon conversion of the Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The Note can be prepaid by us at a premium as follows: | | $ | 44,100 | | | $ | - | |
(a) between 1 and 30 days after issuance – 115% of the principal amount; |
(b) between 31 and 60 days after issuance – 121% of the principal amount; |
(c) between 61 and 90 days after issuance – 127% of the principal amount; |
(d) between 91 and 120 days after issuance – 133% of the principal amount; |
(e) between 121 and 150 days after issuance – 139% of the principal amount; and |
(f) between 151 and 180 days after issuance – 140% of the principal amount. |
There is no right to pre-payment after 180 days. The purchase and sale of the Note closed on March 2, 2015, the date that the purchase price was delivered to us. |
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On January 30, 2015, we entered into a Securities Purchase Agreement with LG Capital Funding, LLC (“LG Capital”), pursuant to which we sold to LG Capital a 8% Convertible Promissory Note in the original principal amount of $82,687.00 (the “ Second LG Note”). The Note has a maturity date of January 29, 2016, and is convertible after 180 days into our common stock at the higher of (i) $0.001 cents per share or (ii) 70% of the average of the two (2) lowest closing bid prices of our common stock for the fifteen (15) trading days prior to receipt of a conversion notice from LG Capital. The shares of common stock issuable upon conversion of the Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The Note can be prepaid by us at a premium as follows: | | | 82,687 | | | | - | |
(a) between 1 and 30 days after issuance – 115% of the principal amount; |
(b) between 31 and 60 days after issuance – 121% of the principal amount; |
(c) between 61 and 90 days after issuance – 126% of the principal amount; |
(d) between 91 and 120 days after issuance – 132% of the principal amount; |
(e) between 121 and 150 days after issuance – 138% of the principal amount; and |
(f) between 151 and 180 days after issuance – 140% of the principal amount. |
There is no right to pre-payment after 180 days. The purchase and sale of the Note closed on January 30, 2015, the date that the purchase price was delivered to us. |
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On November 25, 2014, the Company received an unsecured loan from Typenex Co-Investment, LLC (“First Typenex Note”) in the amount of $86,500, bearing interest at 10%, maturing on August 25, 2015, in exchange for net proceeds of $75,000 after the deduction of $4,000 of loan origination costs and an original issue discount (“OID”) of $7,500. The Company also issued Typenex warrants to purchase 351,455 shares of common stock at a strike price of $0.18 per share over a five year term from the date of investment. The principal and interest is convertible into shares of common stock at the discretion of the note holder at the lesser of (i) $0.18 per share, or (ii) 70% (the “Conversion Factor”) multiplied by the Market Price (as defined in the Note). If the Market Price of our common stock falls below $0.10 per share after the issuance of the Note, the Conversion Factor will automatically be reduced by 5% for all conversions completed while the Market Price is below $0.10 per share. Notwithstanding the foregoing, so long as no Event of Default has occurred, the Conversion Price shall be not less than $0.0001 (the “Conversion Floor”). For the avoidance of doubt, upon the occurrence of an Event of Default, the Conversion Floor shall not apply to any future Conversions and shall be of no further force or effect. The note can be prepaid upon notice to Typenex any time prior to the first conversion at a premium of 120% of the then outstanding balance of the Note. The note carries a default interest rate of 22% per annum. | | | 86,500 | | | | 86,500 | |
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Total convertible notes payable | | | 213,287 | | | | 86,500 | |
Less unamortized debt discounts: | | | | | | | | |
Discount on beneficial conversion feature | | | 65,166 | | | | 32,137 | |
Original issue discount | | | 9,216 | | | | 6,511 | |
Discount on warrants | | | 20,452 | | | | 32,973 | |
Convertible notes payable | | | 118,453 | | | | 14,879 | |
Less: current portion | | | 118,453 | | | | 14,879 | |
Convertible notes payable, less current portion | | $ | - | | | $ | - | |
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The Company recognized interest expense for the three months ended March 31, 2015 and 2014, respectively, as follows: |
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| | March 31, | | | March 31, | |
2015 | 2014 |
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Interest on convertible notes | | $ | 3,476 | | | $ | - | |
Interest on related party loans | | | - | | | | 29,455 | |
Amortization of loan origination costs | | | 2,138 | | | | - | |
Amortization of beneficial conversion feature | | | 19,534 | | | | - | |
Amortization of OID | | | 3,332 | | | | - | |
Amortization of warrants | | | 12,521 | | | | - | |
Total interest expense | | $ | 41,001 | | | $ | 29,455 | |
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In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible debts by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible debt. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt. |
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The aforementioned accounting treatment resulted in debt discounts equal to $52,563 and $37,019 during the three months ended March 31, 2015 and the year ended December 31, 2014, respectively. The discount is amortized on a straight line basis from the dates of issuance until the earlier of the stated redemption date of the debts, as noted above or the actual settlement date. During the three months ended March 31, 2015 and 2014, the Company recorded debt amortization expense in the amount of $19,534 and $-0-, respectively, attributed to the aforementioned debt discounts. |
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The convertible notes, consisting of total original face values of $44,100 from Adar Bays, LLC, $82,687 from LG Capital Funding, LLC, and $86,500 from Typenex Co-Investment, LLC that created the beneficial conversion features carried a default provision that placed a “maximum share amount” on the note holder that can be owned as a result of the conversions to common stock by the note holder of 4.99% of the issued and outstanding shares of the Company. |
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Adar Bays, LLC Convertible Note |
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On February 24, 2015, we entered into a Securities Purchase Agreement with Adar Bays, LLC, pursuant to which we sold to Adar Bays an 8% Convertible Promissory Note (“First Adar Bays Note”) in the original principal amount of $44,100. The First Adar Bays Note has a maturity date of February 24, 2016, and is convertible after 180 days into our common stock at the higher of (i) $0.001 cents per share or (ii) 70% of the average of the two (2) lowest closing prices of our common stock for the fifteen (15) trading days prior to receipt of a conversion notice. |
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The shares of common stock issuable upon conversion of the First Adar Bays Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First Adar Bays Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. |
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The Company evaluated the First Adar Bays Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, did not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion price of $0.0473 below the market price on February 24, 2015 of $0.14 provided a value of $20,420, of which $1,958 and $-0- was amortized during the three months ended March 31, 2015 and 2014, respectively. |
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LG Capital Funding, LLC Convertible Note |
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On January 30, 2015, we entered into a Securities Purchase Agreement with LG Capital Funding, LLC, pursuant to which we sold to LG Capital an 8% Convertible Promissory Note (“Second LG Capital Note”) in the original principal amount of $82,687. The Second LG Capital Note has a maturity date of January 29, 2016, and is convertible after 180 days into our common stock at the higher of (i) $0.001 cents per share or (ii) 70% of the average of the two (2) lowest closing prices of our common stock for the fifteen (15) trading days prior to receipt of a conversion notice. |
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The shares of common stock issuable upon conversion of the Second LG Capital Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the Second LG Capital Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. |
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The Company evaluated the Second LG Capital Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, did not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion price of $0.042 below the market price on January 30, 2015 of $0.14 provided a value of $32,143, of which $5,372- and $-0- was amortized during the three months ended March 31, 2015 and 2014, respectively. |
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Typenex Co-Investment, LLC Convertible Note |
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On November 25, 2014, we entered into a Securities Purchase Agreement with Typenex Co-Investment, LLC, pursuant to which we sold to Typenex a 10% Convertible Promissory Note (“First Typenex Note”) in the original principal amount of $86,500. The First Typenex Note has a maturity date of August 25, 2015, and is convertible into our common stock at the lesser of (i) $0.18 per share, or (ii) 70% (the “Conversion Factor”) multiplied by the Market Price (as defined in the Note). If the Market Price of our common stock falls below $0.10 per share after the issuance of the Note, the Conversion Factor will automatically be reduced by 5% for all conversions completed while the Market Price is below $0.10 per share. Notwithstanding the foregoing, so long as no Event of Default has occurred, the Conversion Price shall be not less than $0.0001 (the “Conversion Floor”). For the avoidance of doubt, upon the occurrence of an Event of Default, the Conversion Floor shall not apply to any future Conversions and shall be of no further force or effect. |
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The shares of common stock issuable upon conversion of the First Typenex Note are restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The issuance of the First Typenex Note is exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder. The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation. |
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The Company evaluated the First Typenex Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability. The beneficial conversion feature discount resulting from the conversion price of $0.1019 below the market price on November 25, 2014 of $0.225 provided a value of $37,019, of which $12,204 and $-0- was amortized during the three months ended March 31, 2015 and 2014, respectively. |