6. Convertible Notes | 6 Months Ended |
Sep. 30, 2013 |
Notes | ' |
6. Convertible Notes | ' |
6. CONVERTIBLE NOTES |
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Convertible Notes # 1 |
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On June 30, 2011, the Company issued $1,200,000 in secured Convertible Promissory Notes ($300,000 related party, officers of the Company) that matures June 30, 2014. The Promissory Notes bears interest at a rate of 8% and can be convertible into 300,000 shares of the Company’s common stock, at a conversion rate of $4.00 per share. Interest will also be converted into common stock at the conversion rate of $4.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 150,000 warrants to purchase the Company’s common stock at $6.00 per share over five years. |
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In accordance ASC 470-20, Debt (“ASC 470-20”), the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $735,334 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (three years) as interest expense. |
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As indicated above, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 150,000 shares of the Company’s common stock at $6.00 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $464,666 to additional paid in capital and a discount against the note. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 1.76%, a dividend yield of 0%, and volatility of 166.12%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (three years) as interest expense. |
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The Company allocated proceeds based on the relative fair values of the debt and warrants, measured at an aggregate of $1,200,000, to the warrant and debt conversion provision liabilities and a discount to Convertible Promissory Notes. The remaining proceeds are apportioned between the value of the note and the embedded beneficial conversion feature. |
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For the six months ended September 30, 2013 and 2012, the Company amortized $200,365 and $200,365 of debt discount to current period operations as interest expense, respectively. |
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Convertible Note # 2 |
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The Company issued a $21,000 unsecured convertible promissory note that matured on July 31, 2013 in exchange for a previously issued convertible promissory note. The note bears interest at a rate of 8% per annum due at maturity and can be convertible into 5,250 shares of the Company’s common stock, at a conversion rate of $4.00 per share. Interest will also be converted into common stock at the conversion rate of $4.00 per share. The note is currently in default. |
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In accordance ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $6,300 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (three years) as interest expense. |
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For the six months ended September 30, 2013 and 2012, the Company amortized $1,142 and $1,713 of debt discount to current period operations as interest expense, respectively. |
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Convertible Notes # 3 |
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During the month of December 2011, the Company issued an aggregate of $200,000 in secured Convertible Promissory Notes ($100,000 related party, officers of the Company) that matures December 2014. The Promissory Notes bear interest at a rate of 8% and can be convertible into 50,000 shares of the Company’s common stock, at a conversion rate of $4.00 per share. Interest will also be converted into common stock at the conversion rate of $4.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 25,000 warrants to purchase the Company’s common stock at $6.00 per share over five years. |
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The Company did not record an embedded beneficial conversion feature in the note since the fair value of the common stock did not exceed the conversion rate at the date of issuance. |
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In connection with the issuance of the promissory notes, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 25,000 shares of the Company’s common stock at $6.00 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $37,201 to additional paid-in capital and a discount against the note. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 0.88% to 0.91%, a dividend yield of 0%, and volatility of 173.57% to 173.81%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (three years) as interest expense. |
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For the six months ended September 30, 2013 and 2012, the Company amortized $6,212 and $6,211 of debt discount to current period operations as interest expense, respectively. |
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Convertible Notes # 4 |
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On March 5, 2012, the Company issued a $100,000 in secured Convertible Promissory Note that matures June 30, 2014. The Promissory Note bears interest at a rate of 8% and can be convertible into 50,000 shares of the Company’s common stock, at a conversion rate of $2.00 per share. Interest will also be converted into common stock at the conversion rate of $2.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 12,500 warrants to purchase the Company’s common stock at $6.00 per share over five years. |
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In accordance ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $62,113 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (three years) as interest expense. |
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For the six months ended September 30, 2013 and 2012, the Company amortized $21,606 and $21,606 of debt discount to current period operations as interest expense, respectively. |
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Convertible Notes # 5 |
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During the month of August 2012, the Company issued an aggregate of $700,000 in secured Convertible Promissory Notes ($200,000 related party, officers of the Company) that mature August 2015, of which $500,000 of the Notes were funded as of March 31, 2013. The Promissory Notes bear interest at a rate of 8% and can be convertible into 125,000 shares of the Company’s common stock, at a conversion rate of $4.00 per share. Interest will also be converted into common stock at the conversion rate of $4.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 62,500 warrants to purchase the Company’s common stock at $6.00 per share over five years. |
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In connection with the issuance of the promissory notes, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 62,500 shares of the Company’s common stock at $6.00 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants and the conversion feature in the amount of $353,085 to additional paid-in capital and a discount against the notes. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 0.65% to 0.81%, a dividend yield of 0%, and volatility of 418.96% to 419.54%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (three years) as interest expense. |
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For the six months ended September 30, 2013 and 2012, the Company amortized $59,008 and $14,163 of debt discount to current period operations as interest expense, respectively. |
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Convertible Notes # 6 |
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On October 24, 2012, in conjunction with the acquisition of Instilend Technologies, Inc., the Company issued an aggregate of $541,496 in secured Convertible Promissory Notes that mature October 2015. The Promissory Notes bear interest at a rate of 5% and can be convertible into 67,687 shares of the Company’s common stock, at a conversion rate of $8.00 per share. Interest will also be converted into common stock at the conversion rate of $8.00 per share. |
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The Company did not record an embedded beneficial conversion feature in the note since the fair value of the common stock did not exceed the conversion rate at the date of issuance. |
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On May 2, 2013, in connection with the sale of the assets of Instilend Technologies, Inc. (See Note 9), the outstanding convertible notes were cancelled. |
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Convertible Note # 7 |
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On February 19, 2013, the Company issued a $100,000 in secured Convertible Promissory Note that mature February 19, 2016. The Promissory Note bears interest at a rate of 8% and can be convertible into 25,000 shares of the Company’s common stock, at a conversion rate of $4.00 per share. Interest will also be converted into common stock at the conversion rate of $4.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 12,500 warrants to purchase the Company’s common stock at $6.00 per share over five years. |
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In connection with the issuance of the promissory note, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 12,500 shares of the Company’s common stock at $6.00 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants and the conversion feature in the amount of $21,182 to additional paid-in capital and a discount against the notes. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 0.89%, a dividend yield of 0%, and volatility of 392.45%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (three years) as interest expense. |
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For the six months ended September 30, 2013, the Company amortized $3,540 of debt discount to current period operations as interest expense. |
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Convertible Note # 8 |
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On March 5, 2013, the Company issued a $200,000 in secured Convertible Promissory Note that mature March 5, 2016. The Promissory Note bears interest at a rate of 8% and can be convertible into 50,000 shares of the Company’s common stock, at a conversion rate of $4.00 per share. Interest will also be converted into common stock at the conversion rate of $4.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 25,000 warrants to purchase the Company’s common stock at $6.00 per share over five years. |
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In connection with the issuance of the promissory note, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 25,000 shares of the Company’s common stock at $6.00 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants and the conversion feature in the amount of $41,584 to additional paid-in capital and a discount against the notes. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 0.77%, a dividend yield of 0%, and volatility of 393.16%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (three years) as interest expense. |
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For the six months ended September 30, 2013, the Company amortized $6,943 of debt discount to current period operations as interest expense. |
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Convertible Note # 9 |
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On March 30, 2013, the Company issued a $262,500 in secured Convertible Promissory Note to a related party an officer of the Company, that mature March 30, 2016. The Promissory Note bears interest at a rate of 8% and can be convertible into 65,625 shares of the Company’s common stock, at a conversion rate of $4.00 per share. Interest will also be converted into common stock at the conversion rate of $4.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 32,813 warrants to purchase the Company’s common stock at $6.00 per share over five years. |
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In connection with the issuance of the promissory note, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 32,813 shares of the Company’s common stock at $6.00 per share. The warrants expire five years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants and the conversion feature in the amount of $54,578 to additional paid-in capital and a discount against the notes. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 0.77%, a dividend yield of 0%, and volatility of 393.11%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (three years) as interest expense. |
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For the six months ended September 30, 2013, the Company amortized $9,113 of debt discount to current period operations as interest expense. |
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At September 30, 2013 and March 31, 2013, convertible note balances consisted of the following: |
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| | September 30, | | | March 31, | | |
2013 | 2013 | |
Convertible Promissory Notes #1, net of unamortized discount of $297,810 and $498,175, respectively | | $ | 902,190 | | | | 701,825 | | |
Convertible Promissory Note #2, net of unamortized discount of $-0- and $1,142, respectively | | | 21,000 | | | | 19,858 | | |
Convertible Promissory Notes #3, net of unamortized discount of $15,392 and $21,604, respectively | | | 184,608 | | | | 178,396 | | |
Convertible Promissory Notes #4, net of unamortized discount of $32,231 and $53,837, respectively | | | 67,769 | | | | 46,163 | | |
Convertible Promissory Notes #5, net of unamortized discount of $221,741 and $280,750, respectively | | | 278,259 | | | | 219,250 | | |
Convertible Promissory Notes #6 | | | - | | | | 541,496 | | |
Convertible Promissory Note #7, net of unamortized discount of $16,868 and $20,408, respectively | | | 83,132 | | | | 79,592 | | |
Convertible Promissory Note #8, net of unamortized discount of $33,654 and $40,597, respectively | | | 166,346 | | | | 159,403 | | |
Convertible Promissory Note #9, net of unamortized discount of $45,416 and $54,529, respectively | | | 217,084 | | | | 207,971 | | |
Long term interest | | | 97,504 | | | | 235,134 | | |
Total | | | 2,017,892 | | | | 2,389,088 | | |
Less: convertible notes payable, current portion | | | 765,411 | | | | 19,858 | | |
Less: convertible notes payable, related party, current portion | | | 225,547 | | | | - | | |
Less: Convertible notes payable, long term portion | | | 562,294 | | | | 1,745,321 | | |
Convertible notes payable-related party, net of discount, long term portion | | $ | 464,640 | | | $ | 623,909 | | |
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Aggregate maturities of long-term debt as of September 30, 2013 are as follows: |
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For the twelve months ended September 30, | | Amount | | | | | | |
2014 | | $ | 1,321,000 | | | | | | |
2015 | | | 700,000 | | | | | | |
2016 | | | 562,500 | | | | | | |
Total | | $ | 2,583,500 | | | | | | |
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During the six months ended September 30, 2013 and 2012, the Company incurred an aggregate of $120,441 and $77,754 as interest expense relating to the amortization of debt discount and accrued interest with regard to related party notes. |
Schedule of Convertible Notes | | | | | | | | | |
| Convertible Note #1 | Convertible Note #2 | Convertible Note #3 | Convertible Note #4 | Convertible Note #5 | Convertible Note #6 | Convertible Note #7 | Convertible Note #8 | Convertible Note #9 |
Principal Balance | 1,200,000 | 21,000 | 200,000 | 100,000 | 700,000 | 541,496 | 100,000 | 200,000 | 262,500 |
Related Party Balance | 300,000 | 0 | 100,000 | 0 | 200,000 | 0 | 0 | 0 | 0 |
Interest Rate | 8.00% | 8.00% | 8.00% | 8.00% | 8.00% | 5% | 8% | 8% | 8% |
Convertible Shares | 300,000 | 5,250 | 50,000 | 25,000 | 125,000 | 67,687 | 25000 | 50000 | 65625 |
Conversion Rate | $4.00 | $4.00 | $4.00 | $2.00 | $4.00 | $8.00 | $4.00 | $4.00 | $4.00 |
Interest Conversion Rate | $4.00 | $4.00 | $4.00 | $2.00 | $4.00 | $8.00 | $4.00 | $4.00 | $4.00 |
Warrants Issued | 150,000 | 0 | 25,000 | 12,500 | 62,500 | 0 | 12500 | 25000 | 32813 |
Per Share Price of Warrants to Purchase Stock | $6.00 | 0 | $6.00 | $6.00 | $6.00 | 0 | $6.00 | $6.00 | $6.00 |
Term of Warrants | 5 | 0 | 5 | 5 | 5 | 0 | 5 | 5 | 5 |
Intrinsic Value of Beneficial Conversion Feature | 735,334 | 6,300 | 0 | 62,113 | 0 | 0 | 0 | 0 | 0 |
Maturity Period of Note | 3 | 3 | 3 | 3 | 3 | 0 | 0 | 0 | 0 |
Detachable Warrants Issued | 150,000 | 0 | 25,000 | 0 | 62,500 | 0 | 12500 | 25000 | 32813 |
Per Share Price of Detachable Warrants | $6.00 | 0 | $6.00 | 0 | $6.00 | 0 | $6.00 | $6.00 | $6.00 |
Term of Detachable Warrants | 5 | 0 | 5 | 0 | 5 | 0 | 5 | 5 | 5 |
Value of Warrants | 464,666 | 0 | 37,201 | 0 | 353,085 | 0 | 21,182 | 41,584 | 54,578 |
Contractual Term | 5 | 0 | 5 | 0 | 5 | 0 | 5 | 5 | 5 |
Risk Free Interest Rate | 1.76% | 0 | 0.88% | 0 | 0.65% | 0 | 0.89% | 0.77% | 0.77% |
Risk Free Interest Rate Upper | 0.00% | 0 | 0.91% | 0% | 0.81% | 0 | 0 | 0 | 0 |
Dividend Yield | 0.00% | 0 | 0.00% | 0% | 0.00% | 0 | 0 | 0 | 0 |
Volatility | 166.12% | 0 | 173.57% | 0% | 418.96% | 0 | 392.45% | 393.16% | 393.11% |
Volatility Upper Limit | 0.00% | 0 | 173.81% | 0% | 419.54% | 0 | 0 | 0 | 0 |
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