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JMJ Note [A]
In June 2013, the Company closed on a 12%, 12-month convertible promissory note with JMJ Financial (“JMJ”) (the “JMJ Note”). The face amount of the JMJ Note reflects a principal sum of $500,000, with total borrowings that may be available of $450,000 (which is net of a 10% original issue discount). Upon closing of the JMJ Note, the Company received $100,000 from JMJ. In September 2013, the Company received an additional $25,000 from JMJ, and in September, 2014, the Company received an additional $30,000 from JMJ.
JMJ has the right, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest (and any other fees) into shares of fully paid and non-assessable shares of common stock of the Company. The conversion price is the lesser of $0.05 or 70% of the average of the three lowest closing prices in the 25 trading days previous to the conversion.
The Note is subject to various default provisions, and the occurrence of such an event of default will cause the outstanding principal amount under the JMJ Note, together with accrued and unpaid interest, and all other amounts payable under the JMJ Note, to become, at JMJ’s election, immediately due and payable to JMJ.
12
NOTE 3 – DEBT (CONTINUED)
The Company determined beneficial conversion features existed at the commitment dates. A beneficial conversion feature of approximately $32,000 was recorded as a discount to the note in 2013, and has been amortized over the term of the loan. A beneficial conversion feature of approximately $10,100 was recorded as a discount to the note in September, 2014, and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 and December 31, 2013, was approximately $9,000 and $14,800, respectively. The JMJ note has an effective interest rate of approximately 34%.
JMJ Conversions
On June 30, 2014, JMJ exercised its option to convert approximately $47,000 of the obligation into 6,000,000 common shares of the Company.
Between July and September 2014, JMJ converted $72,879 of their promissory note and accrued interest for 14,700,000 shares.
In October 2014, JMJ converted $35,453 of their promissory note and accrued interest for 18,416,795 shares.
JSJ Notes[B]
In December 2013, the Company received $25,000 from JSJ Investments Inc. (“JSJ”) in exchange for a $25,000 convertible note (the “JSJ Note 1”). This note bears interest at 12% per annum and matured on May 19, 2014. On or after the maturity date, any unpaid amounts and accrued interest are convertible by the holder, at the holder’s discretion, into shares of the Company’s common stock. The conversion price is at 50% discount of the average of the three lowest closing prices on the previous ten days, with a maximum conversion price equal to the price if determined on the note execution date.
In March 2014, the Company entered into second convertible note with JSJ (the “JSJ Note 2”) in exchange for $50,000. This note also bears interest at 12% per annum and matured on September 20, 2014, with a conversion price at 50% discount of the average of the three lowest closing prices on the previous twenty trading days that would be obtained if the conversion were to be made on the date this note was executed. In addition, the JSJ Note 2 has a redemption premium of 150% of the Principal (the "Repayment Amount"), which such Repayment Amount may be paid by the Company only upon approval and acceptance of JSJ.
In May, 2014, in consideration of $50,000 (the "Principal"), the Company issued a 12% Convertible Note (the “JSJ Note 3”) to JSJ. The Note bears interest at the rate of 12% per annum and the maturity date is November 21, 2014 but JSJ may require that the Note be repaid on demand, with a conversion price at 50% discount of the average of the three lowest closing prices on the previous twenty trading days that would be obtained if the conversion were to be made on the date this note was executed. The JSJ Note 3 has a redemption premium of 150% of the Principal (the "Repayment Amount"), which such Repayment Amount may be paid by the Company only upon approval and acceptance of JSJ.
The JSJ notes are subject to various default provisions, and the occurrence of such an event of default will cause the outstanding principal and interest to become immediately due and payable to JSJ.
13
NOTE 3 – DEBT (CONTINUED)
The Company determined a beneficial conversion feature existed at the commitment date for all three notes. A beneficial conversion feature of approximately $10,000 was recorded as a discount to the first note, a beneficial conversion feature of $22,500 was recorded as a discount to the second note and a beneficial conversion of $25,000 was recorded as a discount to the third note and these are being amortized over the term of the loans. The unamortized debt discount recorded at September 30, 2014 and December 31, 2013 was approximately $6,300 and $10,000, respectively. The JSJ notes have an effective interest rate of approximately 55%, 51% and 56%, respectively.
JSJ Conversions
On July 2, 2014, JSJ converted their entire $25,000 (including $1,000 of interest) promissory note dated December, 2013 for 4,230,652 shares.
On September 29, 2014, JSJ converted $18,968 of their $50,000 promissory note dated March 31, 2013 for 9,727,251 shares.
In October 2014, JSJ converted $49,172 of their $50,000 promissory note dated March 31, 2013 for 33,911,321 shares.
Asher Notes[C]
On January 14, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $58,000 (the "Asher Note 1"). The financing closed on January 14, 2014. The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on October 9, 2014. The Note is convertible into common stock, at Asher’s option, at a 45% discount to the average of the three lowest closing bid prices of the Company’s common stock during the 10 trading day period prior to conversion.
On March 17, 2014, the Company entered into a second Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $22,500 (the "Asher Note 2"). The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on December 9, 2014. The Note is convertible into common stock, at Asher’s option, at a 45% discount to the average of the three lowest closing bid prices of the Company’s common stock during the 10 trading day period prior to conversion.
14
NOTE 3 – DEBT (CONTINUED)
The Company determined a beneficial conversion feature existed at the commitment date for both notes. A beneficial conversion feature of approximately $26,000 was recorded as a discount to the first note and a beneficial conversion feature of $10,000 was recorded as a discount to the second note and both are being amortized over the term of the loans. The unamortized debt discount recorded at September 30, 2014 for both notes totaled $-0-. The Asher notes have an effective interest rate of approximately 51%.
On April 15, 2014, the Company received a notice of default demanding immediate payment of a sum representing 150% of the outstanding principal plus default interest on both notes.
Asher Conversions
In July and August 2014, Asher converted $87,500 of their promissory note (and $2,320 of interest) dated January 14, 2014 for 5,629,809 shares.
In September 2014, Asher converted $40,750 (and $900 of interest) of their promissory note dated March 17, 2014 for 15,164,264 shares.
As a result of these conversions the Asher notes have been settled in full.
LG Note [D]
On March 19, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC ("LG"), for the sale of an 8% convertible redeemable note in the principal amount of $26,500 (the "LG Note"). This financing closed on March 19, 2014.
The LG Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on March 19, 2015. The LG Note is convertible into common stock, at LG’s option, at a 45% discount for 20 prior trading days including the notice of conversion date. The LG Note is subject to prepayment penalties up to a 150% multiple of the principal, interest and other amounts owing, as defined. After the expiration of 180 days following the date of the LG Note, the Company has no right of prepayment.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $12,000 was recorded as a discount to the note and has been amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $4,700. The LG Note has an effective interest rate of approximately 53%.
15
NOTE 3 – DEBT (CONTINUED)
On July 3, 2014, the Company entered into a Securities Purchase Agreement with LG for the sale of two 8% convertible redeemable notes each in the principal amount of $52,500 (the "LG Notes") in consideration of $52,500 and the delivery by LG of a Collateralized Secured Promissory Note Back End Note payable to the Company in the principal amount of $52,500 (the "LG Back End Note"). The financing closed on July 10, 2014.
The LG Notes bear interest at the rate of 8% per annum. All interest and principal must be repaid to the lowest trading price with a twenty day lookback on July 3, 2015. The LG Note are convertible into common stock, at LG's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion. In the event the Company prepays the LG Notes in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the closing date through 60 days thereafter, (ii) 140% if prepaid 61 days following the closing through 120 days following the closing and (iii) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the LG Notes, the Company has no right of prepayment. The LG Note issued in consideration of the LG Back End Note may only be converted by LG in the event the LG Back End Note is paid in full.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $25,500 was recorded as a discount to the note and has been amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $19,300. The LG Note has an effective interest rate of approximately 54%.
LG Conversions
On September 30, 2014, LG converted $8,500 (and $352 of interest) of their $26,500 promissory note dated March 31, 2013 for 4,235,459 shares.
In October 2014, LG converted $18,000 (and $400 of interest) of their $26,500 promissory note dated March 31, 2013 for 11,386,102 shares.
Adar Bays LLC Note [E]
On March 24, 2014, the Company entered into a Securities Purchase Agreement with Adar Bays LLC (“Adar Bays”), for the sale of two convertible notes in the aggregate principal amount of $51,500 (with the first note for an amount of $26,500 and the second note for an amount of $25,000). The Company received proceeds of $25,000 (net of $1,500 financing costs) in exchange for an 8% convertible promissory note due on March 24, 2015. This note is convertible into common stock, at the holder’s option, at any time after 180 days at a 45% discount to the lowest closing bid price of the Company’s common stock during the 20 day trading period prior to conversion including the notice of conversion date, as defined.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $12,000 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $4,900. The LG note has an effective interest rate of approximately 53%.
KBM Worldwide, Inc. Notes [F]
On May 14, 2014, the Company entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $29,000 (the "KBM Note 1"). This Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 13, 2015. The Note is convertible into common stock, at KBM’s option, at a 45% discount to the average of the three lowest closing bid prices of the Company’s common stock during the 10 trading day period prior to conversion.
The KBM Note 1 is subject to prepayment penalties up to a 140% multiple of the principal, interest and other amounts owing, as defined. KBM has agreed to restrict its ability to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering were $29,000, less financing costs of $500.
16
NOTE 3 – DEBT (CONTINUED)
On May 29, 2014, the Company entered into a Securities Purchase Agreement with KBM Worldwide, Inc. for the sale of an 8% convertible note in the principal amount of $32,500 (the "KBM Note 2"). The financing closed on May 29, 2014.
The KBM Note 2 bears interest at the rate of 8% per annum. All interest and principal must be repaid on March 27, 2015. The KBM Note 2 is convertible into common stock, at KBM’s option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the KBM Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 120% if prepaid 31 days following the closing through 60 days following the closing and (iii) 125% if prepaid 61 days following the closing through 90 days following the closing and (iv) 130% if prepaid 91 days following the closing through 120 days following the closing and (v) 135% if prepaid 121 days following the closing through 150 days following the closing and (vi) 140% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the KBM Note, the Company has no right of prepayment.
KBM has agreed to restrict its ability to convert the KBM Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering was $32,500, less attorney’s fees.
On July 27, 2014 Hangover Joe's Holding Corporation (the “Company”) entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $27,500 (the "KBM Note 3"). The financing closed on August 19, 2014.
The KBM Note 3 bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 28, 2015. The KBM Note 3 is convertible into common stock, at KBM’s option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the KBM Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 120% if prepaid 31 days following the closing through 60 days following the closing and (iii) 125% if prepaid 61 days following the closing through 90 days following the closing and (iv) 130% if prepaid 91 days following the closing through 120 days following the closing and (v) 135% if prepaid 121 days following the closing through 150 days following the closing and (vi) 140% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the KBM Note, the Company has no right of prepayment.
KBM has agreed to restrict its ability to convert the KBM Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering was $27,500, less attorney’s fees.
On September 2, 2014, Hangover Joe's Holding Corporation (the "Company") entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "KBM Note 4"). The financing closed on September 8, 2014.
The KBM Note 4 bears interest at the rate of 8% per annum. All interest and principal must be repaid on June 4, 2015. The KBM Note 4 is convertible into common stock, at KBM's option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the KBM Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 120% if prepaid 31 days following the closing through 60 days following the closing and (iii) 125% if prepaid 61 days following the closing through 90 days following the closing and (iv) 130% if prepaid 91 days following the closing through 120 days following the closing and (v) 135% if prepaid 121 days following the closing through 150 days following the closing and (vi) 140% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the KBM Note, the Company has no right of prepayment.
KBM has agreed to restrict its ability to convert the KBM Note 3 and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering was $32,500, less attorney’s fees.
The Company determined a beneficial conversion feature existed at the commitment date for all KBM notes. A beneficial conversion feature of approximately $13,800 was recorded as a discount to the first note, approximately $15,500 was recorded as a discount to the second note, approximately $13,100 was recorded as a discount to the third note, and approximately $15,500 as a discount to the fourth note; all of these discounts are being amortized over the term of the loans. The unamortized debt discount recorded at September 30, 2014 for all KBM notes totaled approximately $39,100. The KBM notes have an effective interest rate of approximately 54%.
17
NOTE 3 – DEBT (CONTINUED)
Auctus Private Equity Fund, LLC [G]
On July 24, 2014, the Company entered into a Securities Purchase Agreement with Auctus Private Equity Fund LLC ("Auctus"), for the sale of an 8% convertible redeemable note in the principal amount of $61,500 (the "Auctus Note").
The Auctus Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 24, 2015. The Auctus Note is convertible into common stock, at Auctus’s option, at a 45% discount to the average of the two lowest closing prices of the common stock during the 25 trading day period prior to conversion. In the event the Company prepays the Auctus Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the closing date through 60 days thereafter, (ii) 140% if prepaid 61 days following the closing through 120 days following the closing and (iii) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Auctus Note, the Company has no right of prepayment.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $29,200 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $22,100. The Auctus Note has an effective interest rate of approximately 39%.
Eastmore Capital, LLC [H]
On July 24, 2014, the Company entered into a Securities Purchase Agreement with Eastmore Capital LLC ("Eastmore"), for the sale of an 8% convertible redeemable note in the principal amount of $35,000 (the "Eastmore Note"). The financing closed on August 12, 2014.
The Eastmore Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on August 5, 2015. The Eastmore Note is convertible into common stock, at Eastmore’s option, at a 50% discount to the lowest closing price of the common stock during the 15 trading day period prior to conversion. In the event the Company prepays the Eastmore Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the closing date through 60 days thereafter, (ii) 140% if prepaid 61 days following the closing through 120 days following the closing and (iii) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Eastmore Note, the Company has no right of prepayment.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $20,700 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $17,500. The Eastmore Note has an effective interest rate of approximately 62%.
GEL Properties, LLC [I]
On August 12, 2014, the Company entered into a Securities Purchase Agreement with GEL Properties LLC ("GEL"), for the sale of an 8% convertible redeemable note in the principal amount of $57,500 (the "GEL Note 1"). The financing closed on August 12, 2014. The GEL Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on August 12, 2015. The GEL Note is convertible into common stock, at GEL’s option, at a 45% discount to the lowest closing bid price of the common stock for the 20 trading day period including the conversion note date prior to conversion. Both notes contain penalty clauses for the Company not being DWAC eligible, DTC eligible, or under a DTC chill. The company is presently in compliance with those provisions.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $25,900 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $22,300. The GEL Note has an effective interest rate of approximately 53%.
On September 12, 2014, the Company entered into a Securities Purchase Agreement with GEL Properties LLC ("GEL"), for the sale of an 8% convertible redeemable note in the principal amount of $57,500 (the "GEL Note 2"). The financing closed on September 12, 2014.
The GEL Notes bears interest at the rate of 8% per annum. All interest and principal must be repaid on August 12, 2015. The GEL Notes are convertible into common stock, at GEL’s option, at a 45% discount to the av lowest closing bid of the common stock during the 20 trading day period prior to conversion including the notice of conversion. Both notes contain penalty clauses for the Company not being DWAC eligible, DTC eligible, or under a DTC chill. The company is presently in compliance with those provisions.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $25,900 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $24,500. The GEL Note has an effective interest rate of approximately 53%.
In August and September 2014, GEL converted $6,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 21,335,407 shares.
In October 2014, GEL converted $2,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 20,100,000 shares.
18
NOTE 3 – DEBT (CONTINUED)
Union Capital, LLC [J]
On August 12, 2014, the Company entered into a Securities Purchase Agreement with Union Capital LLC ("Union"), for the sale of an 8% convertible redeemable note in the principal amount of $57,500 (the "Union Note 1"). The financing closed on August 12, 2014.
The Union Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on August 12, 2015. The Union Note is convertible into common stock, at Union’s option, at a 45% discount to the lowest closing bid price of the common stock for the 20 trading day period including the conversion note date prior to conversion. Both notes contain penalty clauses for the Company not being DWAC eligible, DTC eligible, or under a DTC chill. The company is presently in compliance with those provisions.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $25,900 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $22,300. The Union Note has an effective interest rate of approximately 53%.
On September 11, 2014, the Company entered into a Securities Purchase Agreement with Union Capital LLC ("Union"), for the sale of an 8% convertible redeemable note in the principal amount of $57,500 (the "Union Note 2"). The financing closed on September 12, 2014.
The Union Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on September 11, 2015. The Union Note is convertible into common stock, at Union’s option, at a 45% discount to the lowest closing bid price of the common stock for the 20 trading day period including the conversion note date prior to conversion. Both notes contain penalty clauses for the Company not being DWAC eligible, DTC eligible, or under a DTC chill. The company is presently in compliance with those provisions.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $25,900 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $24,500. The Union Note has an effective interest rate of approximately 53%.
In August and September 2014, Union converted $4,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 15,000,000 shares.
In October 2014, Union converted $9,487 (and $104 of interest) (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 17,206,806 shares.
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $25,900 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 was approximately $24,500. The Union Note has an effective interest rate of approximately 53%.
19
NOTE 3 – DEBT (CONTINUED)
Black Mountain Equities, Inc. Note [K]
On June 4, 2014, in consideration of $225,000 (the "Consideration"), the Company issued a Convertible Note (the "BLE Note") in the original principal amount of $250,000 (the "Original Principal Amount") to Black Mountain Equities, Inc. ("BLE"). As of September 30, 2014, the Company has drawn approximately $50,000 on this note. The Original Principal Amount carries an original issue discount of $25,000. The BLE Note bears a one-time interest charge of 12% which was applied to the Original Principal Amount upon issuance of the BLE Note. The maturity date is one year from each payment of Consideration. The BLE Note is convertible, at BLE’s option, at the lesser of (a) $.05 or (b) 60% of the lowest trade occurring during the twenty five consecutive trading days prior to the conversion date. At any time within the 90 day period immediately following the issuance of the BLE Note, the Company may prepay the remaining outstanding balance of the BLE Note upon providing BLE with 10 business days notice, provided that (i) the Company pays BLE 150% of the remaining outstanding balance of the BLE Note, (ii) such amount is paid in cash on the next day following the 10 business day notice period, and (iii) BLE may still convert the BLE Note until such prepayment amount is paid in full. The shares issuable upon conversion of the BLE Note carry piggy-back registration rights.
As of the date hereof, the Company is obligated on the above notes in connection with the offerings. The notes are a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company.
The Company determined a beneficial conversion feature existed at the commitment date for both notes. A beneficial conversion feature of approximately $25,200 was recorded as a discount to the note which is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 for the note totaled approximately $17,100. The note has an effective interest rate of approximately 74%.
Tangiers Investment Group, LLC [L]
On September 3, 2014, the Company entered into a Note Purchase Agreement with Tangiers Investment Group, LLC ("Tangiers"), for the sale of a 10% convertible promissory note in the principal amount of $40,000 (the "Note"). $2,000 (the "Fee") of the financing amount was retained by Tangiers through an original issue discount for due diligence and legal bills related to the transaction. The financing closed on September 14, 2014.
The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on September 3, 2015. The Note is convertible into common stock, at Tangiers's option and will be equal to 60% of the lowest 15 daily VWAPs (Volume Weighted Average Price) of the Company's common stock prior to the date on which Tangiers elects to convert all or part of the Note. If the Company is placed on "chilled" status with the Depository Trust Company, the discount will be increased by 10% until such chill is remedied. If the Company is not deposit and withdrawal eligible at custodian (DWAC) through their transfer agent and the DTC, the discount will be increased by 5%. In the case of both, the discount shall be a cumulative 15%. The Note may not be prepaid in whole or in part by the Company.
Tangiers has agreed to restrict its ability to convert the Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of common stock of the Company. The total net proceeds the Company received from this Offering was $40,000, less the Fee.
20
NOTE 3 – DEBT (CONTINUED)
The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $16,700 was recorded as a discount to the note which is being amortized over the term of the loan. The unamortized debt discount recorded at September 30, 2014 for the note totaled approximately $15,500. The note has an effective interest rate of approximately 47%.
Note Payable
On August 28, 2014, the Company purchased a vehicle in exchange for a note, payable in 60 monthly installments of $1,095 at an annual percentage rate of 6.99% which is personally guaranteed by the Company’s Chief Executive Officer.
NOTE 4 – ACCRUED EXPENSES
Accrued expenses as of September 30, 2014 and December 31, 2013 consist of the following:
September 30,
December 31,
2014
2013
Accrued expenses
$
-
$
58,941
Deferred salaries
372,815
208,714
Accrued consulting costs – to be paid for in common stock
45,066
165,166
Minimum guaranteed royalty obligation
130,405
75,000
Deferred revenue 34,330 -
Accrued interest
40,655
20,806
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