LG Capital Funding, LLC
On May 19, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC, an accredited investor (“ LG Capital ”), pursuant to which we issued LG Capital two convertible notes. The first note, due May 19, 2015 in the principal amount of $100,000 (“ LG Note 1 ”), was issued in exchange for $100,000 in cash. The second note, due May 19, 2015 in the principal amount of $100,000 (“ LG Note 2 ” and, together with LG Note 1, the “ LG Notes ”), was issued in exchange for a full-recourse, collateralized promissory note from LG Capital in the amount of $100,000 (“ LG Payment Note ”). The LG Payment Note is due on January 15, 2015, unless we do not meet the current public information requirement pursuant to Rule 144, in which case both LG Note 2 and the LG Payment Note may be cancelled. The LG Payment Note is secured by LG Note 1.
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Interest on the LG Notes accrues at the rate of 8% per annum. The Company is not required to make any payments on the LG Notes until maturity. The Company has the right to repay the LG Notes at any time during the first six months of the notes at a rate of 125% of the unpaid principal amount during the first 90 days, 135% of the unpaid principal amount between days 91 and 150, and 145% of the unpaid principal amount between days 151 and 180.
LG Capital may convert the outstanding principal on the LG Notes into shares of the Company’s common stock beginning no earlier than 180 days from the date of issue at the conversion price per share equal to 55% of the lowest daily closing bid with a 20 day look back immediately preceding and including the date of conversion. There is no minimum conversion price.
The fair value of the embedded beneficial conversion feature resulted in a full discount of $100,000 to the LG Notes on the debt issuance date. The discount will be amortized over the term of the note to interest expense using the straight line method which approximates the effective interest method.
As of June 30, 2014, the outstanding balance due on the LG Note 1 was $100,921, which includes $921 in accrued interest. During the three months and six months ended June 30, 2014 this note incurred $11,507 in amortization expenses that was recorded in the financial statements as interest expense. Further, as of June 30, 2014, the remaining unamortized debt discount was $88,493.
The table below provides a summary of the convertible promissory notes as of June 30, 2014:
Description-
Amount ($)
Mermaid Note
30,000
Prim Note
100,000
AB Note 1
50,000
LG Note 1
100,000
Less unamortized debt discount
(240,901)
Net
$
39,099
