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Debt
6 Months Ended
Jun. 30, 2014
Debt [Abstract]  
DEBT

NOTE 4 – DEBT

 

Line of credit

As of June 2014, the Company had a term loan with a third party financial institution for $124,000 with an outstanding balance of $94,711. The note is subject to annual interest of 4.5%. The note is collateralized by all of the assets of NAC and Conic Systems Inc. (“Conic”), an entity owned by the Company’s CEO, and a guarantee issued by the Company’s CEO.

 

Debt with related parties

As of June 30, 2014, the Company has an outstanding non-interest bearing loan from its CEO and majority shareholder, amounting to $20,500. The Company also obtained a loan from a family member of the CEO amounting to $200,000 which is subject to annual interest of 3%. Both loans have no stated maturity dates.

 

On January 20, 2014, the Company obtained a non-interest bearing loan from the CEO amounting to $115,000. The loan matured on May 30, 2014 and is currently past due.

 

In January and April 2014, the Company obtained non-interest bearing loans from a director each amounting to $10,000. The loans have a term of 6 months and the outstanding balance on these loans as of June 30, 2014 amounted to $20,000.

In April 2014, the Company issued a note to a director amounting to $25,000. The note is subject to annual interest of 12.5% and a minimum interest of $1,562. The note shall be paid at the earlier of the Company’s receipt of $50,000 in debt or equity funding or 365 days.

 

During the six months ended June 30, 2014, the Company paid $16,000 on its debt with Conic. The outstanding balance on this debt at June 30, 2014 amounted to $3,318.

 

Convertible debt

In connection with the share exchange agreement, the Company issued a 12% convertible note to a third party which has a term of 1 year and a conversion price of $0.30. Beginning on September 29, 2014 and on each of the following 6 successive months thereafter, the Company is obligated to pay 1/6th of the face amount of the note and accrued interest. All overdue accrued and unpaid interest is subject to a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law. The Company may prepay the note for the sum of the then outstanding principal amount of the convertible note and guaranteed interest multiplied by 125%. The note includes a reset provision in the conversion price in the event the Company subsequently sells shares at a price lower than $0.30. As a result, the Company determined that the conversion feature of the note qualified for derivative accounting. The fair value of the embedded conversion feature as determined using the Black-Scholes option pricing model amounted to $341,987 which was recognized as a debt discount and amortized over the term of the note. The Company also paid fees to the lender amounting to $10,000 which was also recognized as a debt discount and amortized over the term of the note.

 

Amortization of debt discount for the six months ended June 30, 2014 amounted to $59,774.