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Convertible Debt
9 Months Ended
Sep. 30, 2014
Debt Disclosure [Abstract]  
Convertible Debt

NOTE 7 - CONVERTIBLE DEBT

 

During the period ended September 30, 2014, the Company issued convertible promissory notes to investors in the aggregate principal amount of $1,324,283. The convertible promissory notes (i) are unsecured, (ii) bear interest at the rate of 10% per annum, and (iii) are due two years from the date of issuance. The convertible promissory notes are convertible at any time at the option of the investor into shares of the Company’s common stock that is determined by dividing the amount to be converted by the lesser of (i) $1.00 per share or (ii) eighty percent (80%) of the prior thirty day weighted average market price for the Company’s common stock.

 

Due to the variable conversion price associated with these convertible promissory notes, the Company has determined that the conversion feature is considered a derivative liability. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Promissory Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $1,324,283 of the embedded derivative. The fair value of the embedded derivative was determined using intrinsic value up to the face amount of the convertible promissory notes.

 

The initial fair value of the embedded debt derivative of $1,324,283 was allocated as a debt discount and derivatives liability. The debt discount is being amortized over the two year term of the convertible promissory notes. The Company recognized a charge of $139,420 and $207,585 respectively during the quarter and nine months ended September 30, 2014 for amortization of the debt discount.