Quarterly report pursuant to Section 13 or 15(d)

CONVERTIBLE NOTE PAYABLE

v3.2.0.727
CONVERTIBLE NOTE PAYABLE
6 Months Ended
May. 31, 2015
Debt Disclosure [Abstract]  
CONVERTIBLE NOTE PAYABLE

On November 3, 2014, the Company executed a Convertible Promissory Note for $63,250 with LG Capital Funding, LLC. The note bears interest at 8% per annum and is due on or before November 3, 2015. The note includes a 15% original issue discount and is convertible at a 40% discount of the lowest trading price prior to the conversion date, any time during the period beginning 180 days following the date of the note. As a result of the conversion feature the Company recorded a debt discount in the amount of $63,250 to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $109,773 based on the Black Scholes Merton pricing model. As of May 31, 2015, $36,217 of the debt discount has been amortized to interest expense and the Company fair valued the derivative at $73,987 resulting in a gain on the change in fair value of the derivative. This note is presented net of debt discount of $27,033 and has accrued interest of $1,969.

 

On March 27, 2015, the Company executed an unsecured Convertible Promissory Note for $100,000 with Dr. Gary Gelbfish. The note bears interest at 10% per annum and is due on or before September 23, 2015.  If not paid by the due date the note and any accrued interest is convertible at the lesser of $0.50 per share or a 50% discount of the average closing price for the twenty days preceding the conversion. In addition, the loan requires a one-time loan fee of $10,000 and the issuance of 50,000 shares of common stock. The fair value of the common stock issued was determined to be $41,349 based its fair value relative to the fair value of the debt issued. This amount has been recorded as a debt discount and will be amortized utilizing the interest method of accretion over the term of the note. As a result of the conversion feature the Company has recorded additional debt discount of $58,651, $34,857 of which has been amortized to interest expense. The discount was determined by calculating the intrinsic value of the loan based on the stock price on the date of the loan of $1.41 and the conversion price of $0.50. The intrinsic value was $182,000; however the total discount is limited to the amount of the loan. This note is presented net of debt discount of $65,143 and has accrued interest of $1,671.

 

On April 29, 2015, we entered into a $300,000 Convertible Promissory Note (the “Note”) with JMJ Financial (“JMJ”). The face amount of the Note includes an original issue discount of $30,000. The initial advance to be made under the Note by JMJ is $30,000. JMJ may, after making this initial advance, lend us additional sums under the terms of the Note in such amounts and at such dates as it chooses. Individual loans mature two years from the effective date of each payment. If repaid within ninety (90) days from the date of issue, the loan will not bear interest. Upon ninety (90) days after the date of issue, a one-time interest charge of twelve percent (12%) of the principal amount will be applied. JMJ may convert all or part of the Note, at its discretion, into shares of our common stock. The conversion price is the lesser of $1.06 or sixty percent (60%) of the lowest trading price for our common stock in the twenty-five trading days immediately preceding the conversion date. For the initial advance the Company recorded a debt discount in the amount of $33,000 (payment plus 10% original discount) in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $120,888 based on the Black Scholes Merton pricing model. As of May 31, 2015, $1,447 of the debt discount has been amortized to interest expense and the Company fair valued the derivative at $45,388 resulting in a gain on the change in fair value of the derivative. This note is presented net of debt discount of $31,553.

 

On May 11, 2015, the Company issued a Convertible Promissory Note to Union Capital, LLC in the amount of $115,000. The note bears interest at a rate of 8% per annum, is unsecured and matures on May 12, 2016. The Note is convertible into common stock in whole or in part at a variable conversion price equal to a 40% discount to the lowest trading price in the 20-day trading days prior to the conversion date. As a result of the conversion feature the Company recorded a debt discount in the amount of $115,000 to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $193,664 based on the Black Scholes Merton pricing model. As of May 31, 2015, $5,986 of the debt discount has been amortized to interest expense and the Company fair valued the derivative at $162,704 resulting in a gain on the change in fair value of the derivative. This note is presented net of debt discount of $109,014 and has accrued interest of $681.

 

On May 12, 2015, the Company issued a Convertible Promissory Note to Adar Bays, LLC in the amount of $115,000. The note bears interest at a rate of 8% per annum, is unsecured and matures on May 12, 2016. The Note is convertible into common stock in whole or in part at a variable conversion price equal to a 40% discount to the lowest trading price in the 20-day trading days prior to the conversion date. As a result of the conversion feature the Company recorded a debt discount in the amount of $115,000 to be amortized utilizing the effective interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $203,234 based on the Black Scholes Merton pricing model. As of May 31, 2015, $5,671 of the debt discount has been amortized to interest expense and the Company fair valued the derivative at $162,704 resulting in a gain on the change in fair value of the derivative. This note is presented net of debt discount of $109,329 and has accrued interest of $655.

 

A summary of the status of the Company’s debt discounts including original issue discounts, and derivative liabilities, and changes during the periods is presented below:

 

Debt Discount   November 30, 2014   Additions   Amortization   May 30,
2015
LG Capital Funding, LLC – November 4, 2014   $ —       $ 63,250     $ (36,217 )   $ 27,033  
Dr. Gary Gelbfish – March 27, 2015     —         100,000       (34,857 )     65,143  
JMJ Financial – April 29, 2015     —         33,000       (1,447 )     31,553  
Union Capital, LLC – May 11, 2015     —         115,000       (5,986 )     109,014  
Adar Bays, LLC – May 12, 2015     —         115,000       (5,671 )     109,329  
    $ —       $ 426,250     $ (84,178 )   $ 342,072  

 

Derivative Liabilities   November 30, 2014   Initial valuation   Revaluation on 5/31/2015   Gain of fair value of derivative
LG Capital Funding, LLC – November 4, 2014   $ —       $ 109,773     $ 73,987     $ (35,786 )
JMJ Financial – April 29, 2015     —         120,888       45,388       (75,500 )
Union Capital, LLC – May 11, 2015     —         193,664       162,704       (30,960 )
Adar Bays, LLC – May 12, 2015     —         203,234       162,704       (40,530 )
    $ —       $ 627,559     $ 444,783     $ (182,776 )