Promissory Notes | 6 Months Ended |
Mar. 31, 2013 |
Notes to Financial Statements | ' |
NOTE C - PROMISSORY NOTES | ' |
Convertible Promissory Notes ("CPN") |
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As of March 31, 2013, the Company had the following CPNs: |
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Date of: | | Conversion | | | | | | | Accrued | | | Total | |
Issuance | | Maturity | | Price | | Status | | Principle | | | Interest | | | Outstanding | |
1/28/11 | | 7/28/11 | | $ | 0.1 | | In default | | $ | 5,000 | | | $ | 868 | | | $ | 5,868 | |
6/21/11 | | 1/21/12 | | | 0.1 | | In default | | | 2,500 | | | | 356 | | | | 2,856 | |
6/24/11 | | 1/24/12 | | | 0.1 | | In default | | | 10,000 | | | | 1,416 | | | | 11,416 | |
7/14/11 | | 2/14/12 | | | 0.1 | | In default | | | 10,000 | | | | 1,372 | | | | 11,372 | |
7/28/11 | | 2/28/12 | | | 0.1 | | In default | | | 10,000 | | | | 1,341 | | | | 11,341 | |
8/10/11 | | 2/10/12 | | | 0.1 | | In default | | | 15,263 | | | | 2,004 | | | | 17,267 | |
8/19/11 | | 2/19/12 | | | 0.1 | | In default | | | 10,000 | | | | 1,295 | | | | 11,295 | |
9/21/11 | | 3/21/12 | | | 0.1 | | In default | | | 21,500 | | | | 2,629 | | | | 24,129 | |
10/12/11 | | 4/12/12 | | | 0.1 | | In default | | | 2,900 | | | | 333 | | | | 3,233 | |
10/19/11 | | 4/19/12 | | | 0.1 | | In default | | | 7,500 | | | | 838 | | | | 8,338 | |
11/9/11 | | 5/9/12 | | | 0.1 | | In default | | | 11,950 | | | | 1,249 | | | | 13,199 | |
1/3/12 | | 7/3/12 | | | 0.1 | | In default | | | 11,817 | | | | 1,173 | | | | 12,990 | |
2/27/12 | | 8/27/12 | | | 0.1 | | In default | | | 15,392 | | | | 1,343 | | | | 16,735 | |
1/9/13 | | 6/9/13 | | | 0.2 | | Current | | | 75,021 | | | | 1,332 | | | | 76,353 | |
2/8/13 | | 8/8/13 | | | 0.2 | | Current | | | 41,928 | | | | 469 | | | | 42,397 | |
3/18/13 | | 9/15/13 | | | 0.2 | | Current | | | 35,185 | | | | 100 | | | | 35,285 | |
| | | | | | | | | $ | 285,956 | | | $ | 18,118 | | | $ | 304,074 | |
Number of shares issuable upon exercise of the above debt upon default | | | | | | | | 2,270,565 | |
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From time to time the Company has issued CPNs all with identical terms, including a maturity date six to seven months from the date of issuance, eight percent (8%) per annum interest rate, no requirement for any payments prior to maturity, and the right to convert the outstanding principle and interest in to into fully paid and non-assessable shares of the Company's common stock at a fixed conversion price of $0.10 or $0.20 per share upon default. The conversion privilege provides for net share settlement only. Pursuant to ASC 470-20-25-5, the Company determined that due to the market price of the Company's common stock being greater than the conversion price contained in each CPN on the commitment date, each CPN contained a beneficial conversion feature (“BCF”) with an intrinsic value in excess of the face amount of each CPN. The resulting discount to the Loan is recorded to interest expense upon default. The Company has not received notice from the holder of the defaulted notes to enforce collection. The Company communicates regularly with the holder who has not expressed a desire to force collection at this time. |
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During the six months ended March 31, 2013, the Company issued three CPNs totaling $152,134. |
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During the three months ended March 31, 2013 and 2012, the Company recognized $0 and $57,118 as interest expense related to the debt discount arising from the beneficial conversion feature of CPN's entering default status. During the six months ended March 31, 2013 and 2012, the Company recognized $0 and $57,118 as interest expense related to the debt discount. |
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During the three months ended March 31, 2013 and 2012, interest expense related to the stated interest rate contained in the Company's CPNs totaled $4,541 and $6,227, respectively. During the six months ended March 31, 2013 and 2012, interest expense totaled $7,239 and $12,156, respectively. |
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Non-Convertible Promissory Notes |
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On March 19, 2012, the Company entered into a Securities Purchase Agreement, Guaranty and Note (the "Note") with Gemini Master Fund, Ltd. under which the Company issued a promissory note with a face amount of $280,000 and received net proceeds of $245,000. The net proceeds include a $30,000 original issue discount ("OID") and $5,000 in documentary fees associated with the note and with-held by the lender. The Note matured six months from the date of issue, bears interest of twelve percent (12%) per annum on the face amount and is payable in full upon maturity. In the event of default, the Note is subject to a penalty of 130% of the then outstanding principle and increase in the interest rate to twenty four percent (24%) per annum. In connection with the Note the Company issued 200,000 shares of restricted common stock. Pursuant to ASC 470-20-25, the Company recorded a debt discount of $105,933 including $70,933 attributable to the 200,000 shares of common stock and $35,000 to the OID and documentary fees. The debt discount was accreted over the term of the Note, or six months on a straight line basis during our second through fourth quarters of 2012. |
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During the six months ended March 31, 2013, on October 3, 2012, the Company paid $100,000 against the principle balance of the Note and issued 20,000 shares of restricted common stock to Gemini Master Fund, Ltd. in exchange for their not exercising the default terms of the Note. The shares were valued on the date of the Agreement or $0.93 per share. On December 31, 2012, Gemini sold and Amalfi Coast Capital purchased the remaining $100,000 balance remaining under the Note. |
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During the three months ended March 31, 2013 and 2012, the Company recognized $2,959 and $1,103 of interest expense related to this note. During the six months ended March 31, 2013 and 2012, the Company recognized $5,100 and $1,103 of interest expense related to this note. |
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During the three and six months ended March 31, 2013, the Company recognized $7,226 and $15,652, respectively of interest expense related to this Note and $173,391 and $265,288, respectively of accretion related to the debt discount. |