Note 5 - Convertible Note Payable

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Convertible Debt [Text Block]

NOTE 5 -     CONVERTIBLE NOTE PAYABLE

During October 2015, LKA issued a 7.5% convertible debenture for $50,000 in cash. The convertible debenture accrues interest at 7.5% per annum, is unsecured, due in three years from the date of issuance and is convertible into shares of LKA common stock at any time at the option of the holder at a rate of $0.50 per share. Interest is due in semi-annual payments and LKA is required to maintain a reserve of proceeds equal to the first two semi-annual payments. As such, LKA has designated $3,750 as restricted cash at December 31, 2015.

If any event of default occurs, the interest rate increases to 15% per annum and the conversion rate shall be decreased to $0.25 per share. As a result of the potential variable conversion rate, the conversion option embedded in this instrument is classified as a liability in accordance with ASC 815 and LKA recognized a debt discount of $50,000 (see Note 6).

LKA incurred $2,500 in debt issuance costs on the convertible debenture issuance. The debt issuance costs are being amortized over the three year term of the convertible debenture. During the year ended December 31, 2015, LKA recognized $164 of interest expense from the amortization of debt issuance costs.