| 7. Convertible Notes | 7. CONVERTIBLE NOTES Summary of outstanding convertible notes payable as of September 30, 2016 and March 31, 2016 are as follows: September 30, 2016 March 31, 2016 Convertible Promissory notes due June 30, 2017 $ 1,476,660 $ 1,476,660 Convertible Promissory note, due August 17, 2015, in default 100,000 100,000 Convertible note payable, due September 25, 2017, net of unamortized debt discount of $10,601 and $23,106, respectively 6,473 10,494 Convertible note payable, due November 13, 2016, net of unamortized debt discount of $21,708 - 13,292 Convertible notes payable, due August 31, 2016, net of unamortized debt discount of $-0- and $129,523, respectively (in default) 175,000 30,477 Convertible note payable, due December 31, 2016, net of unamortized debt discount of $24,069 20,931 - Long term accrued interest - 207,137 Total 1,779,064 1,838,060 Less: Short term portion (1,520,265 ) (143,769 ) Less: Short term, related party (258,799 ) (- ) Less: Long term, related party ( - ) (295,101 ) Long term convertible notes $ ( - ) $ 1,399,190 Convertible Promissory Note dated July 12, 2016 On July 12, 2016, the Company issued a 8% secured convertible promissory note due December 31, 2016 for previous services rendered. At maturity, the holder may convert the principal and interest into shares of the Company’s common stock at 40% discount of the average of 3 day closing price prior to conversion. Azoth Funding LLC On May 31, 2016, the Company entered into a Securities Purchase Agreement with Azoth Fund LLC, for the sale of a 8% convertible note in the principal amount of $73,500 (the “Note”). The total net proceeds the Company received from this Offering was $32,500, net of fees of $3,500 and payoff of a previously outstanding convertible note. The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on May 31, 2017 and is convertible into common stock, at Azoth Funding LLC’ s option, at a 50% discount to the lowest trading price of the common stock during the 20 trading day period prior to conversion. As of September 30, 2016, the outstanding balance was $-0-. Convertible Promissory Notes dated April 5, 2016 On April 5, 2016, the Company issued a $15,000 convertible promissory notes bearing interest at 12% per annum due upon maturity along with principal on August 31, 2016. The convertible promissory note is convertible, at the holders’ option, at $0.10 per share at any time, the due date or the time of a $5 million equity event, as defined. In connection with the issuance of the convertible promissory notes, the Company issued detachable warrants granting the holder the right to acquire 30,000 shares of the Company’s common stock at $0.50 per share and expire 2 years from the date of issuance. Due to the nature of the previously issued notes described above, the Company determined that the conversion feature requires classification as an embedded derivative. The accounting treatment requires that the Company record at fair value at inception as a liability. The determined fair value (see below) exceeded the net proceeds received, therefore no value were assigned to the issued detachable warrants as described in ASC 470-20. Summary: The Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date. In connection with the Azoth financing, the Company paid off a previously issued convertible debt. At the date(s) of payoff or exchange, the Company determined fair value of the embedded derivatives of $72,174, using the Binominal Option Pricing Model with the following assumptions: contractual terms of 0.45 years, an average risk free interest rate of 0.49%, a dividend yield of 0%, and volatility of 426.69%, was reclassified to additional paid in capital. At final payoff of the Azoth financing, the Company determined fair value of the embedded derivatives of $165,124, using the Binominal Option Pricing Model with the following assumptions: contractual terms of 0.68 years, an average risk free interest rate of 0.40%, a dividend yield of 0%, and volatility of 386.02%, was reclassified to additional paid in capital At the inception of the 2016 Notes, the Company determined the aggregate fair value of $286,330 of embedded derivatives. The fair value of the embedded derivatives was determined using the Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 412.78% to 451.23%, (3) weighted average risk-free interest rate of 0.36 % to 0.68%, (4) expected life of 0.41 to 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.02 to $0.10 per share. The determined fair value of the debt derivatives of $286,330 was charged as a debt discount up to the net proceeds of the notes with the remainder of $159,121 charged to current period operations as non-cash interest expense At September 30, 2016, the Company marked to market the fair value of the debt derivatives and determined a fair value of $110,971. The Company recorded a gain from change in fair value of debt derivatives of $108,440 and $64,722 for the three and six months ended September 30, 2016. The fair value of the embedded derivatives was determined using Binomial Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 361.23%, (3) weighted average risk-free interest rate of 0.29% to 0.59%, (4) expected life of 0.25 to 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.0057 per share. The charge of the amortization and write-off of debt discounts and costs for the three and six months ended September 30, 2016 was $152,468 and $270,376 which was accounted for as interest expense. |
