Note 5 - Convertible Debt | 12 Months Ended |
Dec. 31, 2014 |
Notes | |
Note 5 - Convertible Debt | Note 5 – Convertible Debt |
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On March 26, 2014, we issued a $290,000 convertible note. The note bears interest at 10%, with an initial maturity of March 26, 2015 (subsequently amended to January 15, 2016), and is convertible into shares of our common stock at $1.00 per share. The investor also received warrants to purchase 500,000 shares of our common stock at $0.50 per share with a two-year exercise term. |
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We evaluated the warrants for derivative accounting consideration under ASC Topic 815-40, Derivatives and Hedging – Contracts in Entity’s own stock, and concluded that the warrants meet the criteria for classification in stockholders' equity. We allocated the proceeds received to the debt, stock, and warrants based on their relative fair values. We determined the fair value of the warrants using a Black-Scholes option pricing model with the following inputs: |
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Risk-free interest rate | | | 0.45 | % |
Dividend yield | | | - | % |
Volatility factor | | | 145 | % |
Expected life (years) | | | 2 | |
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The volatility was determined by referring to the average historical volatility of a peer group of public companies because we do not have a trading history from which to determine historical volatility. |
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The proceeds were allocated between the securities issued based on their relative fair values, as follows: |
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Relative fair value of warrants | | | $167,477 | |
Relative fair value of note payable | | | | |
$122,553 |
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Because the price for recent sales of our common stock exceeded the effective conversion price, we also recognized a beneficial conversion right of $122,553. The total discount on the note of $290,000 is being amortized and recognized as additional interest over the life of the note. At December 31, 2014, the unamortized discount is $147,645. |
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On June 7, 2013, we issued a $100,000 convertible note. The note bears interest 10%, had an original due date of June 1, 2014 (subsequently amended to June 1, 2015), and is convertible by the holder into shares of our common stock at $1.00 per share. |
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On August 26, 2013, we issued a $200,000 note. The note bears interest at 15%, and had an original due date of August 26, 2014 (subsequently extended to August 26, 2015). The investor received 250,000 common shares and warrants to purchase 500,000 shares of our common stock at $0.75 per share at any time prior to August 26, 2015. |
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On June 23, 2014, we issued a $30,000 convertible note. The note bears interest at 10%, matures on June 23, 2015, and is convertible into shares of our Company at $1.00 per share. Because the market price for our common stock on the date of the note exceeded the note’s conversion price of $1.00 per share, we recognized a beneficial conversion feature of $21,600 as a discount on the note. The discount is being amortized as additional interest over the life of the note. At December 31, 2014, the unamortized discount is $14,080. |
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We evaluated the conversion features embedded in the two notes payable described above for derivative accounting in accordance with ASC 815-40, Derivatives and Hedging embedded in the modified notes payable for derivative accounting in accordance with the criteria for classification in stockholders' equity. |
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On August 27, 2014, we issued a $50,000 convertible note. The note bears interest at 10%, had an initial maturity of January 2, 2015 (subsequently extended to January 15, 2016), and is convertible into shares of our common stock at $1.00 per share. The investor also received 50,000 shares of our common stock. |
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The proceeds were allocated between the securities issued based on their relative fair values, as follows: |
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Relative fair value of shares | | | $27,778 | |
Relative fair value of conversion feature | | | | |
$22,222 |
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The note has been fully discounted in the amount of $50,000, which is being amortized over the initial term of the note. At December 31, 2014, the unamortized balance on the debt discount is $465. |
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During October 2014, we issued a $60,000 convertible note. The note bears interest at 10%, had an initial maturity of November 2, 2014 (subsequently extended to January 15, 2016) and is convertible into shares of our common stock at $1.00 per share. The investor also received 150,000 shares of our common stock. |
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The proceeds were allocated between the securities issued based on their relative fair values, as follows: |
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Relative fair value of shares | | | $43,448 | |
Relative fair value of note payable | | | | |
$16,552 |
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Because the price for recent sales of our common stock exceeded the effective conversion price, we also recognized a beneficial conversion right of $16,552. The total discount on the note of $60,000 has been recognized as additional interest over the initial term of the note. |
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On November 15, 2012, we issued a $50,000 convertible note. The note bears interest at 10%, with an original maturity of November 15, 2013 (subsequently extended to January 15, 2016), and convertible into shares of our common stock at $1.00 per share. |