7. Convertible Notes | 6 Months Ended |
Sep. 30, 2014 |
Notes | ' |
7. Convertible Notes | ' |
7. CONVERTIBLE NOTES |
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At September 30, 2014 and March 31, 2014, convertible note balances consisted of the following: |
| | 30-Sep-14 | | | 31-Mar-14 | |
Convertible Promissory Notes #1, of which $300,000 related party, net of unamortized discount of $98,540 | | $ | - | | | $ | 1,101,460 | |
Convertible Promissory Notes #2, of which $200,000 related party, net of unamortized discount of $9,215 | | | - | | | | 190,785 | |
Convertible Promissory Notes #3, net of unamortized discount of $10,744 | | | - | | | | 89,256 | |
Convertible Promissory Notes #4, of which $300,000 related party, net of unamortized discount of $163,056 | | | - | | | | 336,944 | |
Convertible Promissory Note #5, net of unamortized discount of $13,347 | | | - | | | | 86,653 | |
Convertible Promissory Note #6, net of unamortized discount of $26,749 | | | - | | | | 173,251 | |
Convertible Promissory Note #7, net of unamortized discount of $27,240 and $36,353, respectively | | | 235,260 | | | | 226,147 | |
Convertible Promissory Notes #8, of which $258,799 related party | | | 1,603,121 | | | | - | |
Long term interest | | | 63,913 | | | | 111,897 | |
Total | | | 1,902,294 | | | | 2,316,393 | |
Less: convertible notes payable, current portion | | | - | | | | 915,351 | |
Less: convertible notes payable, related party, current portion | | | - | | | | 466,150 | |
Less: Convertible notes payable, long term portion | | | 1,638,276 | | | | 443,707 | |
Convertible notes payable-related party, net of discount, long term portion | | $ | 264,018 | | | $ | 491,185 | |
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Aggregate maturities of long-term debt as of September 30, 2014 are as follows: |
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For the twelve months ended September 30, | | Amount | | | | | |
2015 | | | - | | | | | |
2016 | | | 262,500 | | | | | |
2017 | | | 1,603,121 | | | | | |
Total | | $ | 1,865,621 | | | | | |
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During the three and six months ended September 30, 2014, the Company incurred an aggregate of $5,219 and $104,444 as interest expense, respectively and $-0- and $81,326 relating to the amortization of debt discount, respectively, with regard to related party notes. |
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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 |
Principal Balance | 1,200,000 | 200,000 | 100,000 | 500,000 | 100,000 | 200,000 | 262,500 | 1,603,121 |
Related Party Balance | 300,000 | 200,000 | 0 | 300,000 | | | | 258,799 |
Interest Rate | 8.00% | 8.00% | 8.00% | 8.00% | 8% | 8% | 8% | 8% |
Convertible Shares | 300,000 | 50,000 | 50,000 | 125,000 | 25,000 | 50,000 | 65,625 | 1,603,121 |
Conversion Rate | $4.00 | $4.00 | $2.00 | $4.00 | $4.00 | $4.00 | $4.00 | $1.00 |
Interest Conversion Rate | $4.00 | $4.00 | $2.00 | $4.00 | $4.00 | $4.00 | $4.00 | $1.00 |
Warrants Issued | 150,000 | 25,000 | 12,500 | 62,500 | 12,500 | 25,000 | 32,813 | 1,603,121 |
Per Share Price of Warrants to Purchase Stock | $6.00 | $6.00 | $6.00 | $6.00 | $6.00 | $6.00 | $6.00 | $1.50 |
Term of Warrants | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 |
Intrinsic Value of Beneficial Conversion Feature | 735,334 | | 62,113 | | | | | |
Maturity Period of Note | 3 | 3 | 3 | 3 | 3 | 3 | 3 | 5 |
Detachable Warrants Issued | 150,000 | 25,000 | | 62,500 | 12,500 | 25,000 | 32,813 | 1,603,121 |
Per Share Price of Detachable Warrants | $6.00 | $6.00 | | $6.00 | $6.00 | $6.00 | $6.00 | $1.50 |
Term of Detachable Warrants | 5 | 5 | | 5 | 5 | 5 | 5 | 5 |
Value of Warrants | 464,666 | 37,201 | | 353,085 | 21,182 | 41,584 | 54,578 | |
Contractual Term | 5 | 5 | | 5 | 5 | 5 | 5 | 5 |
Risk Free Interest Rate | 1.76% | 0.88% | | 0.65% | 0.89% | 0.77% | 0.77% | 1.62% |
Risk Free Interest Rate Upper | 0.00% | 0.91% | | 0.81% | | | | |
Dividend Yield | 0.00% | 0.00% | | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
Volatility | 166.12% | 173.57% | | 418.96% | 392.45% | 393.16% | 393.11% | 422.71% |
Volatility Upper Limit | 0.00% | 173.81% | | 419.54% | | | | |
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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 matured 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. |
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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. |
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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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On June 30, 2014, the Company issued an aggregate of 545,700 shares of common stock in settlement of $400,000 of notes payable and accrued interest. As an inducement to convert, the Company offered a conversion rate of $1.00 per share and an aggregate of 545,700 warrants to acquire the Company’s common stock exercisable at $1.50 per share for five years in exchange for conversion of notes and cancellation of previously issued warrants to acquire 50,000 shares of the Company’s common stock at $6.00. As a result, the Company recorded a net loss on settlement of debt $937,565. The change in fair value of exchanged warrants was determined using the Black-Scholes pricing model and the following assumptions: contractual terms of 2-5 years, an average risk free interest rate of 0.47% to 1.62%, a dividend yield of 0%, and volatility of 422.71%. |
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Also on June 30, 2014, the Company exchanged the remaining $800,000 of convertible notes and 100,000 warrants to acquire the Company’s common stock for new convertible notes and warrants. In connection with the exchange, the Company recorded a loss on settlement of debt of $982,257 representing the fair value of the issued warrants. (See Convertible Notes # 8 below) |
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For the three and six months ended September 30, 2014, the Company amortized $-0- and $98,540 of debt discount to current period operations as interest expense, respectively. For the three and six months ended September 30, 2013, the Company amortized $99,635 and $200,365 of debt discount to current period operations as interest expense, respectively. |
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Convertible Notes # 2 |
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During the month of December 2011, the Company issued an aggregate of $200,000 in secured Convertible Promissory Notes ($200,000 related party, officers of the Company or major stockholder) 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 the above 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. |
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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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On June 30, 2014, the Company issued 126,364 shares of common stock in settlement of $100,000 note payable and accrued interest. As an inducement to convert, the Company offered a conversion rate of $1.00 per share and an aggregate of 126,364 warrants to acquire the Company’s common stock exercisable at $1.50 per share for five years in exchange for conversion of notes and cancellation of previously issued warrants to acquire 12,500 shares of the Company’s common stock at $6.00. |
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As a result, the Company recorded a net loss on settlement of debt $226,513. The change in fair value of exchanged warrants was determined using the Black-Scholes pricing model and the following assumptions: contractual terms of 2-5 years, an average risk free interest rate of 0.47% to 1.62%, a dividend yield of 0%, and volatility of 422.71%. |
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Also on June 30, 2014, the Company exchanged the remaining $100,000 of convertible note and 12,500 warrants to acquire the Company’s common stock for new convertible notes and warrants. In connection with the exchange, the Company recorded a loss on settlement of debt of $118,865 representing the fair value of the issued warrants. (See Convertible Notes # 8 below) |
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For the three and six months ended September 30, 2014, the Company amortized $-0- and $9,215 of debt discount to current period operations as interest expense, respectively. For the three and six months ended September 30, 2013, the Company amortized $3,123 and $6,212 of debt discount to current period operations as interest expense, respectively. |
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Convertible Notes # 3 |
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On March 5, 2012, the Company issued a $100,000 in secured Convertible Promissory Note that matured 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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On June 30, 2014, the Company issued 130,416 shares of common stock in settlement of the note payable and accrued interest. As an inducement to convert, the Company offered a conversion rate of $1.00 per share and an aggregate of 130,416 warrants to acquire the Company’s common stock exercisable at $1.50 per share for five years in exchange for conversion of notes and cancellation of previously issued warrants to acquire 12,500 shares of the Company’s common stock at $6.00. As a result, the Company recorded a net loss on settlement of debt $223,575. The change in fair value of exchanged warrants was determined using the Black-Scholes pricing model and the following assumptions: contractual terms of 2-5 years, an average risk free interest rate of 0.47% to 1.62%, a dividend yield of 0%, and volatility of 422.71%. |
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For the three and six months ended September 30, 2014, the Company amortized $-0- and $10,744 of debt discount to current period operations as interest expense, respectively. For the three and six months ended September 30, 2013, the Company amortized $10,862 and $21,606 of debt discount to current period operations as interest expense, respectively. |
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Convertible Notes # 4 |
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During the month of August 2012, the Company issued an aggregate of $500,000 in secured Convertible Promissory Notes ($300,000 related party, officers of the Company) that mature August 2015. 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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On June 30, 2014, the Company issued 252,655 shares of common stock in settlement of $200,000 notes payable and accrued interest. As an inducement to convert, the Company offered a conversion rate of $1.00 per share and an aggregate of 252,655 warrants to acquire the Company’s common stock exercisable at $1.50 per share for five years in exchange for conversion of notes and cancellation of previously issued warrants to acquire 25,000 shares of the Company’s common stock at $6.00. As a result, the Company recorded a net loss on settlement of debt $428,288. The change in fair value of exchanged warrants was determined using the Black-Scholes pricing model and the following assumptions: contractual terms of 2-5 years, an average risk free interest rate of 0.47% to 1.62%, a dividend yield of 0%, and volatility of 422.71%. |
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Also on June 30, 2014, the Company exchanged the remaining $300,000 of convertible notes and 37,500 warrants to acquire the Company’s common stock for new convertible notes and warrants. In connection with the exchange, the Company recorded a loss on settlement of debt of $227,868 representing the fair value of the issued warrants. (See Convertible Notes # 8 below) |
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For the three and six months ended September 30, 2014, the Company amortized $-0- and $163,056 of debt discount to current period operations as interest expense, respectively. For the three and six months ended September 30, 2013, the Company amortized $29,665 and $59,008 of debt discount to current period operations as interest expense, respectively. |
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Convertible Note # 5 |
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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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On June 30, 2014, the Company issued 121,964 shares of common stock in settlement of the note payable and accrued interest. As an inducement to convert, the Company offered a conversion rate of $1.00 per share and an aggregate of 121,964 warrants to acquire the Company’s common stock exercisable at $1.50 per share for five years in exchange for conversion of notes and cancellation of previously issued warrants to acquire 12,500 shares of the Company’s common stock at $6.00. As a result, the Company recorded a net loss on settlement of debt $208,286. The change in fair value of exchanged warrants was determined using the Black-Scholes pricing model and the following assumptions: contractual terms of 2-5 years, an average risk free interest rate of 0.47% to 1.62%, a dividend yield of 0%, and volatility of 422.71%. |
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For the three and six months ended September 30, 2014, the Company amortized $-0- and $13,347 of debt discount to current period operations as interest expense, respectively. For the three and six months ended September 30, 2013, the Company amortized $1,780 and $3,540 of debt discount to current period operations as interest expense, respectively. |
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Convertible Note # 6 |
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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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On June 30, 2014, the Company issued 243,254 shares of common stock in settlement of the note payable and accrued interest. As an inducement to convert, the Company offered a conversion rate of $1.00 per share and an aggregate of 243,254 warrants to acquire the Company’s common stock exercisable at $1.50 per share for five years in exchange for conversion of notes and cancellation of previously issued warrants to acquire 25,000 shares of the Company’s common stock at $6.00. As a result, the Company recorded a net loss on settlement of debt $415,359. The change in fair value of exchanged warrants was determined using the Black-Scholes pricing model and the following assumptions: contractual terms of 2-5 years, an average risk free interest rate of 0.47% to 1.62%, a dividend yield of 0%, and volatility of 422.71%. |
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For the three and six months ended September 30, 2014, the Company amortized $-0- and $26,749 of debt discount to current period operations as interest expense, respectively. For the three and six months ended September 30, 2013, the Company amortized $3,490 and $6,943 of debt discount to current period operations as interest expense, respectively. |
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Convertible Note # 7 |
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On March 30, 2013, the Company issued a $262,500 in secured Convertible Promissory Note that matures 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. |
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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. 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 three and six months ended September 30, 2014, the Company amortized $4,581 and $9,113 of debt discount to current period operations as interest expense, respectively. For the three and six months ended September 30, 2013, the Company amortized $4,581 and $9,113 of debt discount to current period operations as interest expense, respectively. |
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Convertible Notes # 8 |
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On June 30, 2014, the Company issued an aggregate of $1,603,121 in secured Convertible Promissory Notes, of which $258,799 related party, that matured June 30, 2017 in exchange for the cancellation of $1,200,000 previously issued convertible notes, accrued interest of $257,310 and an incentive of $145,811 . The Promissory Notes bears interest at a rate of 8% and can be convertible into 1,603,121 shares of the Company’s common stock, at a conversion rate of $1.00 per share. Interest will also be converted into common stock at the conversion rate of $1.00 per share. |
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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 1,603,121 shares of the Company’s common stock at $1.50 per share, net cancellation of previously issued 150,000 warrants to acquire the Company’s stock at $6.00 . The new warrants expire five years from the issuance. |
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The Company did not record an embedded beneficial conversion feature in the notes 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 exchange, the Company recorded an aggregate loss on settlement of debt of $1,588,616 comprised of $1,442,805 representing the fair value of the issued warrants (See Convertible Notes # 1, 2 and 4 above) and $145,811 representing the above described incentive. The Company valued the warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 1.62%, a dividend yield of 0%, and volatility of 422.71%. |
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