ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY
|
|
|
Year
|
|
|
Year
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS (USED) BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net/loss
|
|
$
|
(6,813,934
|
)
|
|
$
|
(6,149,343
|
)
|
|
Adjustment to reconcile net income (loss) to net cash used in
|
|
|
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
27,118
|
|
|
|
6,831
|
|
|
Compensatory stock and warrants
|
|
|
99,504
|
|
|
|
165,068
|
|
|
Bad debt expense
|
|
|
15,190
|
|
|
|
817
|
|
|
Derivative expense/(income)
|
|
|
(244,155
|
)
|
|
|
396,512
|
|
|
Fair value adjustment of convertible note
|
|
|
2,091,049
|
|
|
|
3,169,350
|
|
|
Loss on debt extinguishment
|
|
|
2,022,451
|
|
|
|
-
|
|
|
Amortization of debt discount
|
|
|
303,613
|
|
|
|
365,127
|
|
|
Loss on disposal of fixed assets
|
|
|
198
|
|
|
|
14,345
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,613
|
|
|
|
(7,454
|
)
|
|
Prepaid expenses and other assets
|
|
|
43,375
|
|
|
|
271
|
|
|
Inventories
|
|
|
156,775
|
|
|
|
(178,301
|
)
|
|
Deferred revenue
|
|
|
(7,661
|
)
|
|
|
(11,274
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
1,081,187
|
|
|
|
642,836
|
|
|
Net cash (used) in operating activities
|
|
|
(1,223,677
|
)
|
|
|
(1,585,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS (USED) BY INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(10,902
|
)
|
|
|
(16,002
|
)
|
|
Trademarks
|
|
|
(126
|
)
|
|
|
-
|
|
|
Net cash used in investing activities
|
|
|
(11,028
|
)
|
|
|
(16,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable
|
|
|
950,000
|
|
|
|
1,325,000
|
|
|
Proceeds from short-term bridge loans payable
|
|
|
250,000
|
|
|
|
400,000
|
|
|
Repayment of notes
|
|
|
(90,000
|
)
|
|
|
(225,000
|
)
|
|
Net cash provided by financing activities
|
|
|
1,110,000
|
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(124,705
|
)
|
|
|
(101,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
132,120
|
|
|
|
233,337
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
7,415
|
|
|
$
|
132,120
|
|
ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
-
|
|
|
$
|
3,451
|
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Payment of financing fees with issuance of new notes payable
|
|
$
|
325,000
|
|
|
$
|
15,000
|
|
|
Payment of financing fees with common stock and warrants
|
|
$
|
-
|
|
|
$
|
146,559
|
|
See accompanying notes to consolidated financial statements
ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and Nature of Business:
Attitude Drinks Incorporated, a Delaware corporation, and subsidiary (“the Company”) is engaged in the development and sale of functional beverages, primarily in the United States.
The Company's fiscal year end is March 31. Its plan of operation during the next twelve months is to focus on the non-alcoholic single serving beverage business, developing and marketing products in two fast growing segments: sports recovery and functional dairy.
On May 1, 2012, the state of Delaware approved the increase in our authorized shares of common stock from one billion (1,000,000,000) to five billion (5,000,000,000).
The state of Delaware approved on January 30, 2013 the increase in our authorized shares of common stock from five billion (5,000,000,000) to twenty billion (20,000,000,000). As such, we are reflecting the twenty billion number in our financial statements for the year ended March 31, 2013.
We implemented a 1-for-500 reverse stock split on July 1, 2013. This change occurred before the release of our March 31, 2013 audited financial statements, and we have provided a table in Note 14 that reflects the effects of this reverse stock split. We have restated all applicable financial information for both years ended March 31, 2013 and 2012.
Note 2 – Going Concern and Management’s Plans:
As reflected in the accompanying consolidated financial statements, the Company has incurred accumulated operating losses of $35,330,484 and negative cash flows from operations and has a significant working capital deficiency in the amount of $7,182,088 at March 31, 2013. The Company has been dependent upon third party financing and will continue to depend on additional financing for at least the next twelve months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
During 2013, the Company plans to file a registration statement to provide working capital as needed to increase operations and sales efficiencies through the need to implement sales and marketing programs to increase awareness of the Company’s products as well as to pay for slotting fees for certain retail channels of revenues. The Company plans to increase its sales, primarily by significantly increasing its sales force and partnering with new distributors, as well as offering new products in the next twelve months. The Company’s margins are expected to improve as a result of increased sales, expected economies of scale due to
anticipated lower product costs based on increased volumes per production run and lower transportation costs from the expected shipment of full truck loads. However, the Company expects to reduce its dependency on third party financing during the next twelve months. There is no assurance that further funding will be available at acceptable terms, if at all, or that the Company will be able to achieve profitability. Ultimately, the Company’s ability to continue as a going concern is dependent upon the achievement of profitable operations. The accompanying financial statements do not reflect any adjustments that may result from the outcome of this uncertainty.
Note 3 – Significant Accounting Policies:
(a) Principles of Consolidation:
The Company’s consolidated financial statements include the accounts of Attitude Drinks Incorporated and its wholly-owned subsidiary, Attitude Drink Company, Inc. All material intercompany balances and transactions have been eliminated.
(b) Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimate included in the Company’s financial statements is the following: F
air value of the Company’s financial instruments that are required to be carried at fair
value.
The Company uses all available information and appropriate techniques to develop its estimates, including the use of outside consultants. However, actual results could differ from the Company’s estimates.
(c) Business Segment and Geographic Information:
The Company currently operates in one dominant industry segment that it has defined as the sports-recovery drink industry. However, its next two products will enter into the functional milk category. Presently, there is no international business, although the Company may pursue the sale of its products in international markets during the next fiscal year.
(d) Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.
(e) Inventories:
Inventories, which consist of finished goods and raw materials, are stated at the lower of cost on the first in, first-out method or market. Further, the Company’s inventories are perishable. The Company estimates for each fiscal quarter any unsalable inventory reserves based upon a specific identification basis. The finished goods on consignment represent products shipped under a “pay on scan” model whereas the revenue is deferred until the customer sells through such products to the end consumer. The components of inventories as of March 31, 2013 and March 31, 2012 are below:
|
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
|
Finished goods
|
|
$
|
101,721
|
|
|
$
|
252,413
|
|
|
Finished goods on consignment
|
|
|
-
|
|
|
|
6,083
|
|
|
Total inventories
|
|
$
|
101,721
|
|
|
$
|
258,496
|
|
(f) Fixed Assets:
Fixed assets are stated at cost. Depreciation is computed using the straight-line method over a period of ten years for furniture, three years for computer equipment and three years for purchased software. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Additions and betterments to property and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts, and any resulting gain or loss is included in the statement of operations.
Trademarks are being amortized on a straight-line basis over fifteen years. The following table summarizes the components of the Company’s trademarks:
|
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
|
Trademark costs
|
|
$
|
31,696
|
|
|
$
|
31,570
|
|
Less accumulated amortization
|
|
|
(26,910
|
)
|
|
|
(6,290
|
)
|
|
|
|
$
|
4,786
|
|
|
$
|
25,280
|
|
Amortization expense amounted to $20,620 and $1,897 for the years ended March 31, 2013 and March 31, 2012, respectively. We recorded an additional $18,723 in trademark amortization expense in the total $20,620 expense for the impairment of unamortized trademarks that are currently not used for the year ended March 31, 2013.
(h) Impairment of Long-Lived Assets:
Our long-lived assets consist principally of trademarks, furniture and equipment. We evaluate the
carrying value and recoverability of our long-lived assets when circumstances warrant such evaluation by applying the provisions of the FASB Accounting Standards Codification
which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. See the note above (g) for further explanation.
Note 3 – Significant Accounting Policies (continued):
(i) Financial Instruments:
Financial instruments, as defined in the FASB Accounting Standards Codification consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, notes payable, derivative financial instruments, convertible debt and redeemable preferred stock that we have concluded is more akin to debt than equity.
We carry cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities at historical costs; their respective estimated fair values approximate carrying values due to their current nature.
Derivative financial instruments, as defined in the FASB Accounting Standards Codification, consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded
in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have entered into certain other financial instruments and contracts, such as debt financing arrangements, redeemable preferred stock arrangements and freestanding warrants with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by the FASB Accounting Standards Codification, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements. However, we are allowed to elect fair value measurement of the hybrid financial instruments, on a case-by-case basis, rather than bifurcate the derivative. We believe that fair value measurement of the hybrid convertible promissory notes financing arrangements provide a more meaningful presentation of that financial instrument. As the Company exchanged all applicable warrants through the issuance of new convertible notes in February 21, 2013, derivative liabilities should be zero or reflect immaterial balances.
(j) Revenue Recognition:
The Company recognizes revenue in accordance with the FASB Accounting Standards Codification. Revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured. Revenues are recognized pursuant to formal revenue arrangements with the Company’s customers, at contracted prices, when the Company’s product is delivered to their premises, and collectability is reasonably assured. The Company extends merchantability warranties to its customers on its products but otherwise does not afford its customers with rights of return. Warranty costs have been insignificant to date. However, the Company entered into a sales agreement with a distributor in 2012 whereby unsold product is subject to return provisions. In determining revenue recognition for products shipped to this customer, the Company follows the guidance in ASC 605, “Revenue Recognition” (“ASC 605”). Certain of the products shipped are under a “pay on scan” model, and revenue is deferred by the Company until such time as the customer sells through such products to the end consumer. We no longer have a relationship with this distributor as the amount of deferred revenue relating to pay on scan products reflected in the accompanying balance sheet as of March 31, 2013 and 2012 amounted to $0 and $7,661, respectively.
The Company’s revenue arrangements often provide for industry-standard slotting fees where the Company makes cash payments to the respective customer to obtain rights to place the Company’s products on their retail shelves for a stipulated period of time. We did record slotting fees for $2,625 for the year ended March 31, 2013 which are recorded as reductions to the reported revenues. We did not record any slotting fees for the year ended March 31, 2012. The Company also engages in other promotional discount programs in order to enhance its sales activities. The Company believes its participation in these arrangements is essential to ensuring continued volume and revenue growth in the competitive marketplace. These payments, discounts and allowances are recorded as reductions to the Company’s reported revenue and were $53,046 and $29,878 for the year ended March 31, 2013 and March 31, 2012, respectively.
Note 3 – Significant Accounting Policies (continued):
(k)
Shipping and Handling Costs:
Shipping and handling costs incurred to deliver products to our customers are included as a component of cost of sales. These costs amounted to $38,164 and $38,300 for the year ended March 31, 2013 and March 31, 2012, respectively.
(l) Income Taxes:
We utilize the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of the assets and liabilities and are measured using enacted tax rates and laws that will be in effect, when the differences are expected to reverse. An allowance against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized. We have recorded a 100% valuation allowance against net deferred tax assets due to uncertainty of their realization. The Company’s open tax years are from 2008 through 2013.
Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. For the year ended March 31, 2013 and 2012, we had no accrued interest or penalties related to income taxes. We currently have no federal or state tax examinations in progress.
(m) Loss Per Common Share:
Our basic loss per common share is computed by dividing loss applicable to common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted loss per common share is computed similar to basic loss per common share except that diluted loss per common share includes dilutive common stock equivalents, using the treasury stock method, and assumes that the convertible debt instruments were converted into common stock upon issuance, if dilutive. For the year ended March 31, 2013 and 2012, respectively, potential common shares arising from the our stock warrants, stock options, convertible preferred stock and convertible debt and accrued interest payable amounted to 407,252,998/814,506 (before and after reverse stock split) shares for 2013 and 594,096,790/1,188,194 (before and after reverse stock split) shares for 2012 and were not included in the computation of diluted loss per share because their effect was anti-dilutive.
(n) Recent Accounting Pronouncements Affecting the Company:
In December 2011, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) that provides amendments for disclosures about offsetting assets and liabilities. The amendments require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, securities borrowing and securities lending arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Disclosures required by the amendments should be provided retrospectively for all comparative periods presented. For the Company, the amendment is effective for fiscal year 2014. The Company is currently evaluating the impact these amendments may have on its disclosures.
In June 2011, the Financial Accounting Standards Board issued an ASU that provides amendments on the presentation of comprehensive income. The amendments require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. The amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments do not change the option for an entity to present
components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. In both cases, the tax effect for each component must be disclosed in the notes to the financial statements or presented in the statement in which other comprehensive income is presented. The amendments do not affect how earnings per share is calculated or presented. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. For the Company, the amendment is effective for fiscal 2013. The effect of adoption did not have any impact on the Company as there were no elements of other comprehensive income.
Note 3 – Significant Accounting Policies (continued):
(n) Recent Accounting Pronouncements Affecting the Company (continued):
In October, 2012, the Financial Accounting Standards Board issued an ASU that contained amendments that affect a wide variety of topics in the Codification and represent changes to clarify the Codifications, correct unintended application of guidance or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice
or create a significant administrative cost to most entities. These amendments will be effective for fiscal periods beginning after December 15, 2012. The effect of adoption will have a minimum impact on the Company.
In January, 2013, the Financial Accounting Standards Board issued an ASU that contained amendments to apply to derivatives accounted for in accordance with Topic 815, Derivative and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. These amendments should be applied for fiscal years beginning on or after January 1, 2013 and interim periods within those annual periods. The Company is currently evaluating the impact these amendments may have on its disclosures.
In February, 2013, the Financial Accounting Standard Board issued an ASU that contained amendments that provide guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligations is fixed at the reporting date. Examples of obligations within the scope of this ASU include debt arrangements, other contractual obligations and settled litigation and judicial rulings. These amendments will be effective for fiscal periods and interim periods within those years beginning after December 15, 2013. The Company is currently evaluating the impact these amendments may have on its disclosures.
(o) Advertising Costs
Advertising costs are charged to operations when incurred and are included in operating expenses. Advertising costs for the years ended March 31, 2013 and 2012 were $7,135 and $93,877, respectively.
(p) Concentration of Sales to Certain Clients
During fiscal 2012-2013, the Company had sales to one client that represented 25% of total revenues in the amount of $111,770. Receivables from this entity totaled $5,423 at March 31, 2013.
Note 4 – Fixed Assets:
The Company’s fixed assets are comprised of the following as of March 31, 2013 and 2012:
|
|
|
2013
|
|
|
2012
|
|
|
Equipment
|
|
$
|
19,669
|
|
|
$
|
19,669
|
|
|
Furniture and fixtures
|
|
|
12,837
|
|
|
|
12,837
|
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
3,954
|
|
|
Vehicle
|
|
|
24,382
|
|
|
|
13,481
|
|
|
Purchased software
|
|
|
827
|
|
|
|
827
|
|
|
|
|
|
57,715
|
|
|
|
50,768
|
|
|
Less: accumulated depreciation
|
|
|
(28,857
|
)
|
|
|
(26,115
|
)
|
|
Total Fixed Assets
|
|
$
|
28,858
|
|
|
$
|
24,653
|
|
Depreciation expense aggregated $6,498 and $4,934 for the year ended March 31, 2013 and 2012, respectively. During the year ended March 31, 2013, we moved our office to another location and wrote off the leasehold improvement of the old office location for gross assets of $3,954 less accumulated depreciation of $3,756 for a net loss of $198 due to abandonment. During the year ended March 31, 2012, we changed to a new telephone system and wrote off the old telephone system for gross assets of $23,377 less accumulated depreciation of $9,032 for a net loss of $14,345 due to abandonment.
Note 5 – Accrued Liabilities:
Accrued liabilities consist of the following as of March 31, 2013 and 2012:
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Accrued payroll and related taxes
|
|
$
|
2,770,580
|
|
|
$
|
2,111,853
|
|
|
Accrued marketing program costs
|
|
|
580,000
|
|
|
|
580,000
|
|
|
Accrued professional fees
|
|
|
74,950
|
|
|
|
70,000
|
|
|
Accrued interest
|
|
|
1,221,671
|
|
|
|
1,037,044
|
|
|
Accrued board of directors' fees
|
|
|
170,792
|
|
|
|
134,792
|
|
|
Other expenses
|
|
|
190,578
|
|
|
|
232,111
|
|
|
Total Accrued Liabilities
|
|
$
|
5,008,571
|
|
|
$
|
4,165,800
|
|
Note 6 – Convertible Notes Payable:
During February 21, 2013, the debt holders of the convertible note payables agreed to surrender and convert their outstanding face value of convertible note payables for a total of $5,020,944 by entering into an exchange agreement with the Company to consolidate various convertible note issuances into one new consolidated note per debt holder. These new notes superseded are previous terms of the previous notes and have a maturity date of February 21, 2015 with an interest rate of 4%. All new notes have the same terms and a conversion price per share which shall be equal to seventy-five (75%) of the average of the three lowest closing bid prices for the Common Stock as reported by Bloomberg L.P. for the Principal Market for the twenty days preceding a conversion date but in no event greater than $0.02$10.00 (before and after reverse stock split). In addition, the holders of Series A warrants entered into a second exchange agreement also on February 21, 2013 whereas the warrant holders surrendered to the Company their total warrant holdings of 212,501,323/425,003 (before and after reverse stock split) Class A Common Stock Purchase Warrants through the issuance by the Company of a total of $350,000 in new convertible notes. Both the $5,020,944 and $350,000 amounts were combined and issued into one new consolidated note to each applicable debt holder. No accrued interest payable amounts were added to these new notes. Any new convertible notes issued after this date (other than allonges) will not be included in these new consolidated notes. These new notes are still subject to fair value valuations.
Note 6 – Convertible Notes Payable (continued):
Convertible debt carrying values consist of the following:
|
|
|
|
|
|
Fair Value Amounts
|
|
|
|
|
|
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
|
$
|
312,000
|
|
Convertible Note Financing (a)
|
|
$
|
-
|
|
|
$
|
31,201
|
|
|
$
|
1,200,000
|
|
Convertible Note Financing (b)
|
|
$
|
-
|
|
|
|
569,774
|
|
|
$
|
243,333
|
|
Convertible Note Financing (c)
|
|
$
|
-
|
|
|
|
292,000
|
|
|
$
|
60,833
|
|
Convertible Note Financing (d)
|
|
$
|
-
|
|
|
|
60,833
|
|
|
$
|
20,000
|
|
Convertible Note Financing (c)
|
|
$
|
-
|
|
|
|
20,000
|
|
|
$
|
120,000
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
74,932
|
|
|
$
|
5,000
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
11,964
|
|
|
$
|
60,000
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
92,394
|
|
|
$
|
70,835
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
109,689
|
|
|
$
|
507,500
|
|
Convertible Note Financing (f)
|
|
$
|
-
|
|
|
|
529,393
|
|
|
$
|
200,000
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
79,372
|
|
|
$
|
161,111
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
72,736
|
|
|
$
|
27,778
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
23,894
|
|
|
$
|
111,112
|
|
Convertible Note Financing (g)
|
|
$
|
-
|
|
|
|
229,636
|
|
|
$
|
50,000
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
26,122
|
|
|
$
|
55,000
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
322,408
|
|
|
$
|
137,500
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
404,494
|
|
|
$
|
55,000
|
|
Convertible Note Financing (e)
|
|
$
|
-
|
|
|
|
322,408
|
|
|
$
|
100,000
|
|
Convertible Note Financing (h)
|
|
$
|
-
|
|
|
|
38,829
|
|
|
$
|
900,000
|
|
Convertible Note Financing (i)
|
|
$
|
-
|
|
|
|
568,135
|
|
|
$
|
400,000
|
|
Convertible Note Financing (j)
|
|
$
|
-
|
|
|
|
415,335
|
|
|
$
|
600,000
|
|
Convertible Note Financing (k)
|
|
$
|
-
|
|
|
|
722,663
|
|
|
$
|
221,937
|
|
Convertible Note Financing (l)
|
|
$
|
-
|
|
|
|
132,508
|
|
|
$
|
500,000
|
|
Convertible Note Financing (m)
|
|
$
|
-
|
|
|
|
828,664
|
|
|
$
|
59,359
|
|
Convertible Note Financing (n)
|
|
$
|
-
|
|
|
|
59,359
|
|
|
$
|
1,000,000
|
|
Convertible Note Financing (o)
|
|
$
|
-
|
|
|
|
1,733,696
|
|
|
$
|
172,211
|
|
Convertible Note Financing (p)
|
|
$
|
-
|
|
|
|
300,962
|
|
|
$
|
75,000
|
|
Convertible Note Financing (q)
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
125,000
|
|
Convertible Note Financing (r)
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
75,000
|
|
Convertible Note Financing (s)
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
137,783
|
|
Convertible Note Financing (t)
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
25,000
|
|
Convertible Note Financing (u)
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
5,492,271
|
|
Convertible Note Financing due February 21, 2015 (v), (1) (2)
|
|
$
|
9,451,652
|
|
|
|
-
|
|
|
$
|
25,000
|
|
Convertible Note Financing due May 31, 2013 (u)-(v), (3)
|
|
$
|
62,500
|
|
|
|
-
|
|
|
$
|
25,000
|
|
Convertible Note Financing due June 30, 2013 (u)-(v), (3)
|
|
$
|
62,500
|
|
|
|
-
|
|
|
$
|
25,000
|
|
Convertible Note Financing due July 31, 2013 (u)-(v), (3)
|
|
$
|
62,500
|
|
|
|
-
|
|
|
$
|
25,000
|
|
Convertible Note Financing due August 31, 2013 (u)-(v), (3)
|
|
$
|
62,500
|
|
|
|
-
|
|
|
|
|
|
Total convertible notes payable
|
|
$
|
9,701,652
|
|
|
$
|
8,073,401
|
|
|
(1)
|
All of the above previous convertible notes were surrendered to the Company through a February 21, 2013
exchange agreement whereas the Company issued new consolidated notes per debt holder for a
total outstanding amount on the above date for $5,020,944, $350,000 in new notes for the surrender of
212,501,323/425,003
(before and after reverse stock split)
Class A warrants plus $121,327 in a new note for work rendered for this consolidated
financing in the grand total of $5,492,271.
|
Note 6 – Convertible Notes Payable (continued):
|
(2)
|
New convertible note issued to existing note holder for consideration of work in assisting the
Company for modifications and surrender of old convertible notes payable. Fee based on 5% of
note holder's outstanding amount of $2,426,531 for $121,327 as of Febraury 21, 2013.
|
|
(3)
|
Monthly retainer fee for $25,000 issued as a convertible note
|
Long-term Convertible Debt Maturities:
Annual maturities of long-term convertible debt (face value)
as of March 31, 2013 are as follows:
|
Years ending March 31,
|
|
Face value
$ Amount
|
|
|
Fair Value
$ Amount
|
|
|
2013
|
|
$
|
-
|
|
|
$
|
-
|
|
|
2014
|
|
|
100,000
|
|
|
|
250,000
|
|
|
2015
|
|
|
5,310,290
|
|
|
|
9,451,652
|
|
|
2016
|
|
|
-
|
|
|
|
-
|
|
|
2017
|
|
|
-
|
|
|
|
-
|
|
|
thereafter
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term convertible debt, including current maturities
|
|
|
5,410,290
|
|
|
|
9,701,652
|
|
|
(a)
|
$312,000 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On January 8, 2008, we executed secured convertible notes in the aggregate of $520,000 with three lenders, all unrelated entities. We received a net amount of $430,000 with the $90,000 discount being treated as interest. The loans became payable on May 7, 2008, or we had the option of compelling the holder to convert all, or a portion of the outstanding principal and accrued interest into Company common stock based on defined criteria. On February 13, 2008, we repaid $260,000 of these loans. Through February 21, 2013, total conversions of $293,148 in principal face value have been converted into shares of common stock. The remaining outstanding note balance of $18,852 was surrendered by the debt holder to the Company on February 21, 2013 whereas the Company issued a new consolidated note with new terms and maturity date to the debt holder for the same $18,852.
Prior to February 21, 2013, we had entered into the following Modification and Waiver Agreements related to this financing:
|
Date
|
|
Terms
|
|
Consideration
|
|
June 2008
|
|
Extend maturity to July 15, 2008
|
|
9,750 shares of common stock
|
|
September 2008
|
|
Extend maturity to sooner of January 1, 2009 or closing of another funding
|
|
Increase principal by $52,000
|
|
January 2009
|
|
Extend maturity date to July 1, 2009 and add a conversion option of $0.05
|
|
140,000 shares of restricted stock
|
|
January 2010
|
|
Extend maturity date to June 30, 2010
|
|
Convertible notes (See Note 6(h)
|
|
July 2010
|
|
Extend maturity date to March 31, 2011
|
|
Change in conversion price to $.035
|
|
March 2011
|
|
Extend maturity date to March 31, 2012
|
|
Change in conversion price to $.02
|
|
March 2012
|
|
Extend maturity date to March 31, 2014
|
|
New convertible notes (See Note 6 (p)
|
Note 6 – Convertible Notes Payable (continued):
|
(a)
|
$312,000 convertible notes payable (continued)
|
The addition of a conversion option and the issuance of restricted stock in January 2009 resulted in an extinguishment loss of $56,000 under the FASB Accounting Standards Codification.
The January 2010 modification resulted in an extinguishment loss of
$72,441. On July 14, 2010, we extended the due date to March 31, 2011 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $900,000. On March 17, 2011, we extended the due date to March 31, 2012 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $600,000. The conversion price of these notes shall be equal to eighty (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02, subject to further reduction as described in the notes. On March 31, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding March 31, 2012 principal face value amount (see Note 6 (p)).
Prior to February 21, 2013, we chose to value the entire hybrid instrument at fair value. We estimated the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.
|
(b)
|
$1,200,000 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On October 23, 2007, we entered into a Subscription agreement with a group of accredited investors. Under this agreement, we agreed to sell up to $1,200,000 of our securities consisting of 10% convertible notes, shares of common stock and Class A and Class B common stock purchase warrants. The original subscription agreement required that we have an effective registration statement in order for the second closing date to occur. On February 15, 2008, we obtained a Waiver of Certain Conditions that allowed us to waive the requirement for the Registration Statement to become effective prior to the occurrence of the Second closing.
The convertible promissory notes were initially convertible into common shares based on a fixed conversion price of $6.60, and are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification
.
We chose to value the entire hybrid instruments at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts. The warrants issued in this financing arrangement did not meet the conditions for equity classification and are also required to be carried as a derivative liability, at fair value. We estimate the fair value of the warrants on the inception dates, and subsequently, using the Black-Scholes valuation technique, adjusted for dilution, because that technique embodies all of the assumptions (including volatility, expected terms, dilution and risk free rates) that are necessary to fair value freestanding warrants. See also Note 9 –Derivative Liabilities.
The warrants and the convertible notes contain full-ratchet protection so the exercise price of the warrants and the conversion price of the notes were reduced to $3.30 when the Company issued additional convertible instruments with this conversion rate on December 18, 2008. On January 27, 2009, we entered into a modification of the agreement which reduced the maturity date from October 23, 2009 to July 1, 2009 and changed from a periodic debt payment schedule to full payment of principal and interest on July 1, 2009. In exchange for this modification, we issued 62,500 shares of restricted stock, and we agreed to reduce the conversion price of the notes and related warrants to $1.00. This modification resulted in a loss on extinguishment of $379,183. The conversion price was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009. On January 10, 2010, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010. In exchange for this modification, we issued convertible promissory notes in the amount of $100,000 (See Note 6(h)). Additionally, we agreed to (i) issue additional warrants to purchase 1,635,792 shares of common stock and (ii) reduce the price of certain warrants to $0.20. This modification resulted in an extinguishment loss of
$395,249
.
On January 28, 2010, certain warrants were re-priced to $0.16, and the expiration dates were extended to July 15, 2015. On February 11, 2010, the warrants which were re-priced to $0.20 on January 10, 2010 were re-priced to $0.16, and the expiration dates were extended to July 15, 2015.
Note 6 – Convertible Notes Payable (continued):
|
(b)
|
$1,200,000 convertible notes payable (continued)
|
On July 14, 2010, we extended the due date to March 31, 2011 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $900,000. The conversion price for the convertible debt was changed to $.035. In addition, $221,608 of the outstanding balance plus $27,460 in accrued interest payable was assigned to new debt holders. On March 17, 2011, we extended the due date to March 31, 2012 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $600,000. The conversion price for the convertible debt was changed to $0.02 as well as the exercise price of all associated warrants to $.02.
The conversion price of these notes shall be equal to eighty (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02, subject to further reduction as described in the notes. On March 31, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding March 31, 2012 principal face value amount (see Note 6 (p)).
Through February 21, 2013, a total of $816,000 of the principal balance and $177,981 in accrued interest have been converted into shares of common stock, and a total of $301,608 of the principal balance was sold to other accredited investors, resulting in the outstanding principal amount of $82,392. This remaining amount of $82,392 was surrendered by the debt holders to the Company on February 21, 2013 as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date to the debt holders. All 1,817,610 outstanding warrants were surrendered and cancelled through another exchange via the issuance of new convertible notes by the Company to these debt holders.
|
(c)
|
$243,333 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On September 29, 2008, for cash proceeds for $192,500, net of issuance costs of $7,500, we issued $243,333 face value convertible notes, due March 29, 2009, plus warrants to purchase (i) 28,333 shares of our common stock at an exercise price of $10.00 and (ii) additional warrants to purchase 28,333 shares of our common stock at an exercise price of $15.00, representing an aggregate 56,666 shares. The notes are convertible, only at the Company’s option, into Common Stock at $3.30 and are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than that price. The notice of conversion must be given to the Holder on the first day following the twenty consecutive trading days during which the stock price is greater than $100.00 per share each trading day and the daily trading volume is greater than 100,000 shares. The Holder of the note does not have an option to convert the instrument. The note is secured by a security interest in all the tangible and intangible assets of the Company. According to the original terms of the note, fifty percent of the interest was due on December
28, 2008 and fifty percent due and payable on March 29, 2009; however, the Company modified the agreement on January 27, 2009 to require full payment of principal and interest on July 1, 2009 in exchange for a reduction of the conversion price of the note and exercise price of the warrants to $1.00. On January 27, 2009, the warrants were redeemed in exchange for a convertible note in the amount of $70,834. The exchange resulted in an extinguishment loss of $82,484. See Note 6(e). On January 10, 2010, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010. In exchange for this modification, we issued convertible promissory notes in the amount of $100,000 (See Note (h). This modification resulted in an extinguishment loss of $113,768. On July 14, 2010, we extended the due date to March 31, 2011 as part of the subscription agreement for a convertible debt financing in the principal gross amount of $900,000. On March 17, 2011, we extended the due date to March 31, 2012 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $600,000. The conversion price for the convertible debt was changed to $0.02 as well as the exercise price of all associated warrants to $.02.
The conversion price of these notes shall be equal to eighty (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02, subject to further reduction as described in the notes. On March 31, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding March 31, 2012 principal face value amount (see Note 6 (p)).
The current outstanding amount is zero as two assignments/sales of $191,333 were made to another accredited investor, and $52,000 were converted into shares of common stock during the quarter ended March 31, 2013. There were no outstanding warrants to surrender for newly issued convertible notes.
In originally evaluating the financing transaction, we concluded that the conversion feature was not clearly and closely related to the debt instrument since the risks are those of an equity security; however, we determined that the conversion feature met the paragraph 11(a) exemption and did not require liability classification under the FASB Accounting Standards Codification. Since the embedded conversion feature did not require liability classification, we were required to consider if the contract embodied a
beneficial conversion feature (“BCF”). The conversion option is contingent on a future stock price so under the guidance of The FASB Accounting Standards Codification, the beneficial conversion feature was calculated at inception but will not be recognized until the contingency is resolved. The aggregate BCF at its intrinsic value amounted to $192,739. This amount gives effect to (i)
the trading market price on the contract date and (ii) the effective conversion price after allocation of proceeds to the warrants. Notwithstanding, BCF was limited to the value ascribed to the note (using the relative fair value approach).
Note 6 – Convertible Notes Payable (continued):
|
(c)
|
$243,333 convertible notes payable (continued)
|
The warrants and the convertible note contain full-ratchet protection so the exercise price of the warrants and the conversion price of the notes were reduced to $3.30 when the Company issued additional convertible instruments with a lower conversion rate on December 18, 2008. The conversion price was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009. The conversion price and exercise price were reduced again to $.035 as part of the July, 2010 financing of $900,000 and again to $.02 as part of the March, 2011 financing of $600,000. As noted above, there were no outstanding warrants for the year ended March 31, 2013.
In connection with the note, we issued a note payable in the amount of $20,000 under the same terms as the $243,333 note as consideration for finders’ fees. The finders’ fee note did not include warrants. This balance is now zero as an assignment /sale was completed for the $20,000 balance during the quarter ended March 31, 2013.
|
(d)
|
$60,833 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On December 18, 2008, we entered into a financing arrangement that provided for the issuance of $60,833 face value convertible note for a purchase price of $50,000, due March 29, 2009, plus warrants to purchase (i) 7,084 shares of our common stock at an exercise price of $10.00 and (ii) additional warrants to purchase 7,084 shares of our common stock at an exercise price of $15.00, representing an aggregate 14,168 shares. The note was initially convertible into common shares, only at the Company’s option, a conversion price of $3.30 and is subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than that price. The notice of conversion must be given to the Holder on the first day following the twenty consecutive trading days during which the stock price is greater than $100.00 per share each trading day and the daily trading volume is greater than 100,000 shares. The Holder of the note does not have an option to convert the instrument. The note is secured by a security interest in all the tangible and intangible assets of the Company. According to the original terms of the note, fifty percent of the note was due on December 28, 2008 and fifty percent due and payable on March 29, 2009 and if the note was not paid by its maturity date; a default rate of 15% applied. The note was considered in default as of December 28, 2008 due to non-payment of the required principle payment, therefore, it is recorded at face value and default interest of 15% is being accrued.
We modified the note agreement on January 27, 2009 to require full payment of principal and interest on July 1, 2009 in exchange for a reduction of the conversion price of the note and exercise price of the warrants to $1.00. On January 27, 2009, the warrants were redeemed in exchange for a convertible note in the amount of $70,834. The exchange resulted in an extinguishment loss of $82,484. See Note 6(e). The conversion price was reduced again to $.494 when the Company issued additional convertible
instruments with a lower conversion rate in November 2009. On January 10, 2010, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010. In exchange for this modification, we issued convertible promissory notes in the amount of $100,000 (See Note 6(h)). This modification resulted in an extinguishment loss of $26,282. On July 14, 2010, we extended the due date to March 31, 2011 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $900,000 in which the conversion price for the notes payable and exercise price of the warrants were reduced to $0.035. Later on March 17, 2011, we extended the due date to March 31, 2012 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $600,000 which the conversion price for the notes payable and exercise price for the warrants was reduced to $0.02.
The conversion price of these notes shall be equal to eighty (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02, subject to further reduction as described in the notes. On March 31, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding March 31, 2012 principal face value amount (see Note 6 (p))
. The current outstanding amount is zero as one assignment/sale of $60,833 was made to another accredited investor during the quarter ended March 31, 2013. There were no outstanding warrants for the year ended March 31, 2013 to surrender for newly issued convertible notes.
In originally evaluating the financing transaction, we concluded that the conversion feature was not clearly and closely related to the debt instrument; however, it did meet the paragraph 11(a) exemption and did not require liability classification. We considered if the contract embodied a beneficial conversion feature (“BCF”) however there was no beneficial conversion feature present, since the effective conversion price was greater than the market value of the stock.
Note 6 – Convertible Notes Payable (continued):
|
(e)
|
$942,224 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On January 27, 2009 , March 30, 2009, and July 15, 2009, we entered into Subscription agreements with a group of accredited investors that provided for the sale of an aggregate $892,224 face value secured convertible notes and warrants to purchase an aggregate 1,183,473 shares of our common stock. The notes and warrants are based on a fixed conversion price of $1.00 and are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion price was reduced to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009. On January 10, 2010, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010. In exchange for this modification, we issued convertible promissory notes in the amount of $50,000. Additionally, we agreed to reduce the price of certain warrants to $0.20. This modification resulted in an extinguishment loss of $309,740. On January 28, 2010, certain warrants were re-priced to $0.16, and the expiration dates were extended to July 15, 2015. On February 11, 2010, the warrants which were re-priced to $0.20 on January 10, 2010 were re-priced to $0.16, and the expiration dates were extended to July 15, 2015. On May 13, 2010, we executed an allonge to the March, 2009 secured convertible notes payable for $55,000 as well as issued 114,583 warrants at an exercise price of $0.16. On July 14, 2010, we extended the due date to March 31, 2011 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $900,000. As part of this extension, the conversion price of the convertible notes payable and the exercise price of the applicable warrants were changed to $.035. On March 17, 2011, we extended the due date to March 31, 2012 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $600,000. As part of this extension, the conversion price of the convertible notes payable and the exercise price of the applicable warrants were changed to $.02.
The conversion price of these notes shall be equal to eighty (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02, subject to further reduction as described in the notes. On March 31, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding March 31, 2012 principal face value amount (see Note 6 (p)). Up until February 21, 2013 $435,370 of the principal balance and $124,563 of accrued interest were converted into shares of common stock plus an assignment/sale of $27,834 was made to another accredited investor, resulting in the outstanding principal balance of $479,020.
This remaining amount was surrendered by the debt holders to the Company on February 21, 2013 as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date to the debt holders. All 1,183,473 outstanding warrants were surrendered and cancelled through another exchange via the issuance of new convertible notes by the Company to these debt holders.
Prior to February 21, 2013, the holder had the option to redeem the convertible notes for cash in the event of defaults and certain other contingent events, including events related to the common stock into which the instrument was convertible, registration and listing (and maintenance thereof) of our common stock and filing of reports with the Securities and Exchange Commission (the “Default Put”). The conversion feature was not afforded the exemption as conventional convertible and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instrument at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.
Prior to February 21, 2013, we also evaluated the warrants to determine if they required liability or equity accounting. The warrants issued in conjunction with the financing are redeemable for cash upon the occurrence of acquisition, merger or sale of substantially all assets of the Company in an all cash transaction; therefore, the FASB Accounting Standards Codification requires that they be recorded as derivative liabilities on our balance sheet and marked to fair value each reporting period. As has already been stated, there are no more outstanding warrants.
|
(f)
|
$507,500 convertible note payable:
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On August 8, 2008, the Company executed a secured convertible promissory note in the aggregate amount of $507,500 with one lender, an unrelated entity. The note was payable on August 7, 2009 with interest on the outstanding principal to accrue at 10%. This note was entered into pursuant to the terms of a Secured Promissory Note and Security Agreement, Asset Purchase Agreement and Registration Rights Agreement to purchase certain trademarks, notably “Slammers” and “Blenders”, from a company that previously acquired such trademarks through a foreclosure sale of certain assets of Bravo! Brands, Inc. The holder of this note payable had the right to convert all or any portion of the then aggregate outstanding principal amount together with interest at the fixed conversion price of $20.00. In November 2009, the note was settled with the issuance of new notes of equal face value, which are convertible into shares of common stock at a conversion price equal to the lesser of $1.00 or 80% of the
average of the three lowest closing bid prices for the Company’s common stock for the twenty trading days preceding the date of conversion. The notes are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at
less than those prices. On January 10, 2009, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010. In exchange for this modification, we issued convertible promissory notes in the amount of $50,000. Additionally, we agreed to reduce the price of certain warrants to $0.20. This modification resulted in an extinguishment loss of $206,356. On July 14, 2010, we extended the due date to March 31, 2011 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $900,000 in which the conversion price for the notes payable was changed to $.035. In addition, $203,882 of the outstanding balance plus $46,327 in accrued interest payable were assigned to new debt holders. On March 17, 2011, we extended the due date to March 31, 2012 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $600,000 in which the conversion price for the notes payable was changed to $.02.
The conversion price of these notes shall be equal to eighty (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02, subject to further reduction as described in the notes. On March 31, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding March 31, 2012 principal face value amount (see Note 6 (p)). To date, the entire amount of $507,500 was sold to other accredited investors in which the buying investors converted the entire balance into shares of common stock, resulting in no outstanding balances.
Note 6 – Convertible Notes Payable (continued):
|
(f)
|
$507,500 convertible note payable (continued):
|
When there was an outstanding balance, the conversion feature was not afforded the exemption as conventional convertible and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.
|
(g)
|
$111,112 convertible note payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. In November 2009, the Company issued a convertible note with a face value of $111,112 and 150,000 shares of common stock in exchange for marketable securities with a fair market value on the date of the transaction of $76,000. The note is convertible into common stock at a fixed conversion price of $1.00 per share subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. On January 10, 2009, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010. In exchange for this modification, we issued convertible promissory notes in the amount of $50,000. Additionally, we agreed to reduce the price of certain warrants to $0.20. This modification resulted in an extinguishment loss of $47,520. On July 14, 2010, we extended the due date to March 31,
2011 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $900,000 in which the conversion price of the notes payable and the exercise price of the applicable warrants were changed to $.035. On March 17, 2011, we extended the due date to March 31, 2012 as part of a subscription agreement for a convertible debt financing in the principal gross amount of $600,000. As part of this extension, the conversion price of the convertible notes payable and the exercise price of the applicable warrants were changed to $.02.
The conversion price of these notes shall be equal to eighty (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02, subject to further reduction as described in the notes. On March 31, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding March 31, 2012 principal face value amount (see Note 6 (p)).
The full original amount of $111,112 was outstanding as of February 21, 2013 when the note holder surrendered this note to the Company as part of the exchange agreement whereas the Company issued a new consolidated note with new terms and maturity date for the various previous outstanding notes held by the debt holder. There were no outstanding warrants to surrender for a new convertible note.
Prior to the exchange agreement, we chose to value the entire hybrid instrument at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.
Note 6 – Convertible Notes Payable (continued):
|
(h)
|
$100,000 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. As consideration for the modification agreement we entered into with certain investors on January 10, 2010, we agreed to issue two convertible promissory notes in the aggregate amount of $100,000. The notes are based on a fixed conversion price of $1.00 and are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. As part of the agreement from the July, 2010 financing for $900,000, the maturity date was extended to March 31, 2011, and the conversion price of the notes payable was changed to $.035. As part of the agreement from the March, 2011 financing for $600,000, the maturity date was extended to March 31, 2012, and the conversion price of the notes payable was changed to $.02.
The conversion price of these notes shall be equal to eighty (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $.02, subject to further reduction as described in the notes. On March 31, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding March 31, 2012 principal face value amount (see Note 6 (p)). Up until February 21, 2013, $50,000 of the principal balance and $13,450 of accrued interest were converted into shares of common stock, resulting in an outstanding principal balance of $50,000
when the note holder surrendered this note to the Company as part of the exchange agreement whereas the Company issued a new consolidated note with new terms and maturity date for the various previous outstanding notes held by the debt holder. There were no outstanding warrants to convert to a new convertible note.
Prior to the conversion on February 21, 2013, the holder had the option to redeem the convertible notes for cash in the event of defaults and certain other contingent events, including events related to the common stock into which the instrument was convertible, registration and listing (and maintenance thereof) of our common stock and filing of reports with the Securities and Exchange Commission (the “Default Put”). The conversion feature was not afforded the exemption as conventional convertible and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instrument at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.
|
(i)
|
$900,000 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On July 15, 2010, we entered into a Subscription Agreement with a group of accredited investors. Under this agreement, we agreed to sell up to $900,000 of our securities consisting of 10% convertible notes with a maturity date of July 15, 2012 and 65,999,999 Class A stock purchase warrants at an exercise price of $.035 with an expiration date of July 14, 2015. The conversion price for the convertible notes payable per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.08. On February 22, 2012, we entered into a Fifth Amendment and Consent Agreement as part of the February, 2012 financing in which the above $.08 conversion price was changed to $.02 as well as the exercise price of the warrants was changed from $.035 to $.02. These notes payable and warrants are subject to full ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting
Standards Codification. We chose to value the entire hybrid instruments at fair value. The warrants issued in this financing arrangement did not meet the conditions for equity classification and are also required to be carried as a derivative liability, at fair value. We estimate the fair value of the warrants on the inception dates, and subsequently, using the Black-Sholes Merton valuation technique, adjusted for dilution, because that technique embodies all of the assumptions (including volatility, expected terms, dilution and risk free rates) that are necessary to fair value freestanding warrants. See also Note 9` – Derivative Liabilities. At inception, we allocated $156,000 as the valuation cost of the warrants (debt discount) against the gross proceeds of the $900,000 financing using the relative fair value method. We recorded a total debt discount of $171,600 (above $156,000 plus $15,600 for warrants issued to placement agent) in which we recorded $209,446 to capture the accretion of the debt discount from inception. Up until February 21, 2013, a total of $264,725 was converted into shares of common stock, resulting in an outstanding balance of $635,275 at March 31, 2012.plus $131,663 of accrued interest were converted into shares of common stock. On February 21, 2013, the note holders surrendered their notes to the Company as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date for the various previous outstanding notes held by the debt holders. The remaining outstanding 56,666,666 warrants were surrendered and cancelled through other exchange agreements via the issuance of new convertible notes by the Company to these debt holders.
Total financing costs paid from this financing amounted to $164,500 as well as a payment of $39,024 for other past due professional fees, resulting in a net amount of $696,476 to be paid to us at $150,000 per month until the total amount is paid in the following months. As such, we reported a stock subscription amount of $246,476 for the period ended September 30, 2010. That amount has since been paid from October through November, 2010. In addition, we recorded $15,600 in non-cash deferred financing fees for the issuance of 6,000,000 warrants as a finder’s fee as part of the total issued 65,999,999 Class A warrants. In addition, we paid other financing fees associated with this financing in the amount of $11,500, resulting in a total of $191,600.
Note 6 – Convertible Notes Payable (continued):
|
(i)
|
$900,000 convertible notes payable (continued)
|
As noted throughout Note 6, certain debts were assigned to new debt holders. A total of $413,358 in convertible notes payable and $86,642 in accrued interest payable for a total of $500,000 was assigned to new debt holders as part of the July, 2010 financing. Out of the total $500,000 balance, the entire $500,000 in these assigned notes payable were converted into common shares of stock from inception through the year ended March 31, 2013.These $500,000 assigned notes had the same conversion price terms as the $900,000 new notes payable.
|
(j)
|
$400,000 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On January 21, 2011, we entered into a Subscription Agreement with a group of accredited investors. Under this agreement, we agreed to sell up to $400,000 of our securities consisting of 10% convertible notes with a maturity date of July 15, 2012 and 20,460,357 Class A stock purchase warrants at an exercise price of $.035 with an expiration date of January 20, 2016. The conversion price for the convertible notes payable per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.08. On February 22, 2012, we entered into a Fifth Amendment and Consent Agreement as part of the February, 2012 financing in which the above $.08 conversion price was changed to $.02 as well as the exercise price of the warrants was changed from $.035 to $.02. These notes payable and warrants are subject to full ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. The warrants issued in this financing arrangement did not meet the conditions for equity classification and are also required to be carried as a derivative liability, at fair value. We estimate the fair value of the warrants on the inception dates, and subsequently, using the Black-Sholes Merton valuation technique, adjusted for dilution, because that technique embodies all of the assumptions (including volatility, expected terms, dilution and risk free rates) that are necessary to fair value freestanding warrants. See also Note 9 – Derivative Liabilities. At inception, we allocated $136,123 as the valuation cost of the warrants (debt discount) against the gross proceeds of the $400,000 financing using the relative fair value method. We recorded $177,211 to capture the accretion of the debt discount since inception. Total conversions of the principal amount up to February 21, 2013 amounted to $195,523 which were converted into shares of common stock, resulting in the current outstanding balance of $204,477 as well as accrued interest in the total amount of $16,942 was converted into shares of common stock. On September 30, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding September 30, 2012 principal face value (see Note 6 (t).
On February 21, 2013, the note holders surrendered their notes to the Company as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date for the various previous outstanding notes held by the debt holders. The remaining outstanding 14,578,005 warrants were surrendered and cancelled through other exchange agreements via the issuance of new convertible notes by the Company to these debt holders.
Total financing costs paid from this financing amounted to $70,000 as well as the payment of $102,500 of a previous promissory note resulted in a net amount of $227,500 to be paid to us. Out of this total $227,500, an amount of $128,500 was paid in the first January, 2011 closing with the remaining amount of $99,000 being paid in the second February, 2011 closing. In addition, we recorded $31,921 in non-cash deferred financing fees for the issuance of 2,046,035 restricted shares of common stock as a finder’s fee.
|
(k)
|
$600,000 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On March 17, 2011, we entered into a Subscription Agreement with a group of accredited investors. Under this agreement, we agreed to sell up to $600,000 of our securities consisting of 10% convertible notes with a maturity date of September 17, 2012 and 43,708,610 Class A stock purchase warrants (includes 3,973,510 warrants as a finder’s fee) at an exercise price of $.02 with an expiration date of March 16, 2016. The conversion price for the convertible notes payable per share shall be equal to seventy-five percent (75%)
of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.02. These notes payable and warrants are subject to full ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. The warrants issued in this financing arrangement did not meet the conditions for equity classification and are also required to be carried as a derivative liability, at fair value. We estimate the fair value of the warrants on the inception dates, and subsequently, using the Black-Sholes Merton valuation technique, adjusted for dilution, because that technique embodies all of the assumptions (including volatility, expected terms, dilution and risk free rates) that are necessary to fair value freestanding warrants. See also Note 9 – Derivative Liabilities. At inception, we allocated $223,802 as the valuation cost of the warrants (debt discount) against the gross proceeds of the $400,000 financing using the relative fair value method. We recorded $268,562 to capture the accretion of the debt discount since inception. Total conversions of the principal amount up to February 21, 2013 amounted to $291,378 which were converted into shares of common stock, resulting in an outstanding principal balance of $308,622 at February 21, 2013. In addition, a total of $10,744 of accrued interest was converted into shares of common stock. On September 30, 2012, we extended the due date to March 31, 2014 by issuing new convertible notes payable for 10% of the outstanding September 30, 2012 principal face value amount (see Note 6(t). On February 21, 2013, the note holders surrendered their notes to the Company as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date for the various previous outstanding notes held by the debt holders. The remaining outstanding 40,397,352 warrants were surrendered and cancelled through other exchange agreements via the issuance of new convertible notes by the Company to these debt holders. Total financing costs paid from this financing amounted to $90,000 resulted in a net amount of $510,000 to be paid to us. In addition, we recorded $75,371 in non-cash deferred financing fees for the issuance of 3,973,510 warrants to purchase common stock as a finder’s fee as well as issued a convertible note for $18,000 for a 3% non-accountable allowance placement agent fee as this note contained the same conversion rights as the above convertible notes. This particular note has been fully converted into shares of common stock.
Note 6 – Convertible Notes Payable (continued):
|
(l)
|
$221,937 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On May 23, 2011, the holder of the original April 2, 2008 short term bridge loan with principal balance of $120,000 and of the original May 19, 2008 short term bridge loan with principal balance of $33,000 entered into an agreement to transfer the original notes and personal guarantee of Roy Warren, CEO, to another debt holder (Jody Eisenman) who already is an existing debt holder and accredited investor. On June 30, 2011, the new debt holder entered into a Debt Exchange Agreement with the Company to transfer these two short term bridge loans dated April 2, 2008 with principal balance of $120,000 plus interest of $53,951 and the second short term bridge loan dated May 19, 2008 with principal balance of $33,000 plus interest of $14,986 for a grand total of $221,937 into a new long term convertible note with an interest rate of 10% and a maturity date of September 17, 2012. This new note covers all previous commitments through June 30, 2011. As consideration for this exchange, the Company cancelled the
personal guarantee of Roy Warren, CEO, and issued a warrant to purchase 20,000,000 shares of the Company’s common stock at an exercise price of $.02 with a life of five years. This convertible note and warrants are subject to the same rights as all other convertible notes and associated warrants as the conversion price for the convertible notes payable per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.02. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. The warrants issued in this financing arrangement did not meet the conditions for equity classification and are also required to be carried as a derivative liability, at fair value. We estimate the fair value of the warrants on the inception dates, and subsequently, using the Black-Sholes Merton valuation technique, adjusted for dilution, because that technique embodies all of the assumptions (including volatility, expected terms, dilution and risk free rates) that are necessary to fair value freestanding warrants. See also Note 9 – Derivative Liabilities. Through this exchange, all original notes and guarantee and all obligations related thereunder were cancelled and terminated. We recorded $2,767 to capture the accretion of the debt discount since inception. Total conversions of the principal amount to date amounted to $206,083 leaving a remaining outstanding principal face amount of $15,854 as of February 21, 2013. In addition, $803 in accrued interest was converted into shares of common stock. On September 30, 2012, we extended the due date to March 31, 2014 by issuing new convertible n notes payable for 10% of the outstanding September 30, 2012 principal face value amount (see Note 6(t)).
Note 6 – Convertible Notes Payable (continued):
|
(m)
|
$500,000 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On July 15, 2011, we entered into a Subscription Agreement with a group of accredited investors. Under this agreement, we agreed to sell up to $1,000,000 of our securities consisting of 10% convertible notes with a maturity date of January 15, 2013 in which we did sell $500,000. In addition, we did issue a convertible note under the same terms as the $500,000 convertible notes for a 3% finder’s fee in the amount of $15,000. We issued 27,500,000 Class A stock purchase warrants (includes 2,500,000 warrants as a finder’s fee) at an exercise price of $.02 with an expiration date of July 14, 2016. The conversion price for the convertible notes payable per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.02. These notes payable and warrants are subject to full ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. The warrants issued in this financing arrangement did not meet the conditions for equity classification and are also required to be carried as a derivative liability, at fair value. We estimate the fair value of the warrants on the inception dates, and subsequently, using the Black-Sholes Merton valuation technique, adjusted for dilution, because that technique embodies all of the assumptions (including volatility, expected terms, dilution and risk free rates) that are necessary to fair value freestanding warrants. See also Note 9 – Derivative Liabilities. At inception, we allocated $70,454 as the valuation cost of the warrants (debt discount) against the gross proceeds of the $500,000 financing using the relative fair value method. We recorded $69,150 to capture the accretion of the debt discount since inception. There have been no conversions of this debt. There have been no conversions of this debt, but $75,000 of the principal amount was sold to a new accredited investor in August, 2012 resulting in an outstanding balance of $425,000 as of February 21, 2013. Total financing costs paid from this financing amounted to $95,000 resulting in a net amount of $405,000 to be paid to us. On February 21, 2013, the note holders surrendered their notes to the Company as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date for the various previous outstanding notes held by the debt holder. The remaining outstanding 27,500,000 warrants were surrendered and cancelled through other exchange agreements via the issuance of new convertible notes by the Company to these debt holders.
|
(n)
|
$59,359 convertible notes payable
|
As the debt has been fully paid, there is no restatement for the reverse stock split. On November 3, 2011, we entered into a promissory note with conversion rights with outside legal counsel in the principal sum of $59,359, payable on or before May 5, 2012. This note shall bear interest at the rate of five percent (5%) simple interest per annum until paid in full. At the option of the holder at the due date, all or any portion of the unpaid accrued interest and/or unpaid principal amount of this note shall be converted into newly issued shares of the Company’s common stock at the lesser of a
conversion price per share equal to (1) the closing price reported on the primary trading market on the day prior to the conversion date or (2) the lowest conversion price for other convertible debt or securities issued by the Company with the ability to be converted or exercised on the Due Date. The conversion price in no event will be such an amount to trigger any conversion or exercise price reset or anti-dilution rights in existing convertible notes or other convertible securities on the Due Date. The holder may not convert any amount of the note into a number of shares of common stock which would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of common stock on such conversion date. The holder is not limited to aggregate conversions of 4.99%. On May 29, 2012, a conversion for $50,000 in principal and on October 8, 2012 a conversion for the remaining principal balance of $9,359 plus accrued interest for $1,926 were made for the issuance of shares of common stock, resulting in the note and applicable accrued interest to be fully paid as of December 31, 2012.
Note 6 – Convertible Notes Payable (continued):
|
(o)
|
$1,000,000 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split. On February 22, 2012, we entered into a Subscription Agreement with a group of accredited investors. Under this agreement, we agreed to sell up to $1,000,000 of our securities consisting of 10% convertible notes with a maturity date of March 31, 2014 in which we did sell $1,000,000. We issued 50,000,000 Class A stock purchase warrants at an exercise price of $.02 with an expiration date of February 21, 2017. The conversion price for the convertible notes payable per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.02. These notes payable and warrants are subject to full ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. The warrants
issued in this financing arrangement did not meet the conditions for equity classification and are also required to be carried as a derivative liability, at fair value. We estimate the fair value of the warrants on the inception dates, and subsequently, using the Black-Sholes Merton valuation technique, adjusted for dilution, because that technique embodies all of the assumptions (including volatility, expected terms, dilution and risk free rates) that are necessary to fair value freestanding warrants. See also Note 9 – Derivative Liabilities. At inception, we allocated $44,735 as the valuation cost of the warrants (debt discount) against the gross proceeds of the $1,000,000 financing using the relative fair value method. We recorded $25,681 to capture the accretion of the debt discount since inception. There have been no conversions of this debt; however, the total increased by $950,000 due to various allonges which are as follows:
|
|
|
Date of
Allonge
|
|
$
Amount
|
|
|
Finder's
Fees
|
|
|
Allonge #1
|
|
8/22/2012
|
|
$
|
75,000
|
|
|
$
|
-
|
|
|
Allonge #2
|
|
10/18/2012
|
|
|
150,000
|
|
|
|
15,000
|
|
|
Allonge #3
|
|
11/9/2012
|
|
|
135,000
|
|
|
|
10,000
|
|
|
Allonge #4
|
|
12/6/2012
|
|
|
165,000
|
|
|
|
15,000
|
|
|
Allonge #5
|
|
12/14/2012
|
|
|
165,000
|
|
|
|
15,000
|
|
|
Allonge #6
|
|
1/14/2013
|
|
|
220,000
|
|
|
|
20,000
|
|
|
Allonge #7
|
|
2/15/2013
|
|
|
40,000
|
|
|
|
5,000
|
|
|
Total
|
|
|
|
$
|
950,000
|
|
|
$
|
80,000
|
|
On February 21, 2013, the note holders surrendered their notes to the Company as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date for the various previous outstanding notes held by the debt holder. The remaining outstanding 50, 000,000 warrants were surrendered and cancelled through other exchange agreements via the issuance of new convertible notes by the Company to these debt holders.
Total financing costs paid from this financing amounted to $160,000. In addition, we applied three previous bridge loans for a total of $175,000 into this new financing, paid $103,451 for two other previous bridge loans including interest, resulting in a net amount of $561,549 to be paid to us.
|
(p)
|
$172,211 convertible notes payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On March 31, 2012, we entered into an Extension Agreement with note holders who have existing convertible notes in the total outstanding amount of $172,211 with a due date of March 31, 2012 to extend the maturity date of these notes to March 31, 2014. As consideration of the extension of the maturity date of these notes, we issued to each note holder a new convertible note with an interest rate of twelve percent (12%) in the principal amount representing ten percent (10%) of the principal amount owed to each note holder.
The conversion price for the convertible notes payable per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.02. These notes payable are subject to full ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. There have been no conversions of this debt. On February 21, 2013, the note holders surrendered their notes to the Company as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date for the various previous outstanding notes held by the debt holder. There were no warrants to surrender.
Note 6 – Convertible Notes Payable (continued):
|
(q)
|
$75,000 convertible note payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On August 8, 2012, a new accredited investor, Southridge Partners II LP, purchased $75,000 of a previously issued $100,000 convertible note payable dated July 15, 2011 (see Note 6 (m)). A new replacement note for $75,000 was issued with a maturity date of January 15, 2013 with an interest rate of 10%. There were no associated warrants with this transaction. The conversion price for this convertible note shall
be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.02. This note payable is subject to full ratchet anti-dilution protection if we sell shares at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the note requires liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. The total amount of $75,000 has been converted into shares of common stock resulting in no outstanding balance.
|
(r)
|
$125,000 convertible note payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On August 31, 2012, we entered into an equity purchase agreement with Southridge Partners II, LP. As a condition for the execution of this agreement, we issued a promissory convertible note in the principal amount equal to $125,000. We received no cash proceeds. This note shall have no registration rights and has a maturity date of February 28, 2013. The note is not subject to interest and is convertible into shares of common stock in denominations of ten thousand dollars ($10,000) and integral multiples thereof, provided that the number of shares to be issued upon conversion is a minimum of 3,000. The holder of this note is entitled any time after the maturity date to convert all or a portion of the principal amount of this note into shares of common stock at a conversion price equal to the current market price multiplied by seventy percent (70%). Current market price means the average of the two (2) lowest closing bid prices for the common stock as reported by Bloomberg, LP or, if not so reported, as reported on the over-the-counter market, for the five (5) trading days ending on the trading day immediately before the relevant conversion date. The holder of this note may not convert this note to the extent such conversion would result in excess of 9.99% of the then issued and outstanding shares of common stock held by such holder.
This note payable is subject to full ratchet anti-dilution protection if we sell shares at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the note requires liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. There have been no conversions of this debt. On February 21, 2013, the note holder surrendered his note to the Company as part of the exchange agreements whereas the Company issued a new consolidated note with new terms and maturity date for the various previous outstanding notes held by the debt holder. There were no warrants to surrender.
|
(s)
|
$75,000 convertible note payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On July 19, 2012, we entered into a consulting agreement with SC Advisors, Inc. to explore various options relating to equity financing, potential asset acquisitions, corporate recapitalization and growth management strategies (collectively consulting services). This agreement is subject to the Company paying a monthly retainer of $25,000, starting August 1, 2012. The original agreement provided monthly payment in restricted preferred stock, but both parties agreed to payment by the issuance of convertible notes for the retainer payments. As such, we issued a promissory convertible note on September 26, 2012 in the principal amount equal to $75,000 for payments of the August, September and October 2012 retainers ($25,000 per month times 3 months). We received no cash proceeds. The principal of this note is payable at the option of the holder at any time after the maturity date of March 26, 2013 in shares of the Company’s common stock. The note is not subject to interest and is convertible into shares of common stock in denominations of ten thousand dollars ($10,000) and integral multiples thereof, provided that the number of shares to be issued upon conversion is a minimum of 3,000. The note may be converted into common stock at a conversion price equal to the current market price multiplied by eighty percent (80%). Current market price means the average of the closing bid prices for the common stock as reported by Bloomberg, LP or, if not so reported, as reported on the over-the-counter market, for the five (5) trading days ending on the trading day immediately before the relevant conversion date. The holder of this note may not convert this note to the extent such conversion would result in excess of 9.99% of the then issued and outstanding shares of common stock held by such holder.
This note payable is subject to full ratchet anti-dilution protection if we sell shares at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the note requires liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. There have been no conversions of this debt. On February 21, 2013, the note holder surrendered his note to the Company as part of the exchange agreements whereas the Company issued a new consolidated note with new terms and maturity date for the various previous outstanding notes held by the debt holder. There were no warrants to surrender.
Note 6 – Convertible Notes Payable (continued):
|
(t)
|
$137,783 convertible note payable
|
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On September 30, 2012, we entered into an Extension Agreement with note holders who have existing convertible notes in the total outstanding amount of $137,783 with due dates of July 15, 2012 and September 17, 2012 to extend the maturity date of these notes to March 31, 2014. As consideration of the extension of the maturity date of these notes, we issued to each note holder a new convertible note with an interest rate of ten percent (10%) in the principal amount representing ten percent (10%) of the principal amount owed to each note holder.
The conversion price for the convertible notes payable per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the ten trading days preceding a conversion date but in no event greater than $.02. These notes payable are subject to full ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. There have been no conversions of this debt. On February 21, 2013, the note holders surrendered their notes to the Company as part of the exchange agreements whereas the Company issued new consolidated notes with new terms and maturity date for the various previous outstanding notes held by the debt holder. There were no warrants to surrender.
|
(u)
|
Other Convertible Notes
|
(i) On October 12, 2012, an accredited investor, Southridge Partners II LP, purchased $20,000 of the $75,762 non-convertible note held by our landlord (See Note 8). The purchased note was changed to a convertible note and was fully converted into shares of common stock during the quarter ended December 31, 2012.
(ii)
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On October 6, 2012, an accredited investor, Southridge Partners II LP, purchased $125,000 of a previously issued $253,750 convertible note payable assigned and dated August, 2008 (see Note 6(f)). A new replacement note for $125,000 was issued with a maturity date of March 31, 2014 with an interest rate of 12%. There were no associated warrants with this transaction. The conversion price for this convertible note shall
be equal to eighty percent (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the twenty trading days preceding a conversion date but in no event greater than $.02. The total amount of $125,000 has been converted into shares of common stock resulting in no outstanding balance.
(iii) On November 1, 2012, we issued a convertible note for $25,000 for November, 2012 services rendered from SC Advisors, Inc. as part of their consulting fees for the Company’s restructuring program as this note has the same features and terms as the note referenced in Note 6 (s). There have been no conversions.
On February 21, 2013, the note holder surrendered his note to the Company as part of the exchange agreements whereas the Company issued a new consolidated note with new terms and maturity date for the various previous outstanding notes held by the debt holder. There were no warrants to surrender.
(iv)
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On November 28, 2012, an accredited investor, Southridge Partners II LP, purchased the remaining amount of $128,750 from a previously issued $253,750 convertible note payable assigned and dated August, 2008 (see Note 6(f) and 6(u-ii)).A new replacement note for $128,750 was issued with a maturity date of March 31, 2014 with an interest rate of 12%. There were no associated warrants with this transaction. The conversion price for this convertible note shall
be equal to eighty percent (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the twenty trading days preceding a conversion date but in no event greater than $.02. The total amount of $128,750 has been converted into shares of common stock.
(v) On December 1, 2012, January 1, 2013, February 1, 2013 and March 1, 2013, we issued a convertible note for $25,000 for each month, totaling $100,000 for December, 2012 through March, 2013 services rendered from SC Advisors, Inc. as part of their consulting fees for the Company’s restructuring program as these notes have the same features and terms as the note referenced in Note 6 (s). These notes were not part of the February 21, 2013 exchange consolidation. Their maturity dates are from 5/31/2013, 6/30/13, 7/31/13 and 8/31/13, respectively for each note as the debt holder will extend the maturity dates as needed
.
(w)
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On December 13, 2012, an accredited investor, Southridge Partners II LP, purchased $150,000 of a previously issued $243,333 convertible note payable dated September, 2008 (see Note 6(c)). A new replacement note for $150,000 was issued with a maturity date of March 31, 2014 with no interest as original note was a discount note. There were no associated warrants with this transaction. The conversion price for this convertible note shall
be equal to eighty percent (80%) of the average of the three
lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the twenty trading days preceding a conversion date but in no event greater than $.02. As of February 21, 2013, the total amount of $150,000 was converted into shares of common stock.
Note 6 – Convertible Notes Payable (continued):
|
(u)
|
Other Convertible Notes - (continued)
|
(x
)
As these notes were consolidated in February, 2013, no financial restatements are made for the reverse stock split.
On January 8, 2013, an accredited investor, Southridge Partners II LP, purchased $41,333 of a previously issued $243,333 convertible note payable dated September, 2008, $20,000 of a previously issued convertible note also dated September, 2008, $60,833 of a previously issued convertible note dated December, 2008 and $27,834 of a previously issued convertible note payable dated February, 2009 for $60,000 (see Note 6(c)). A new replacement note for $150,000 was issued with a maturity date of March 31, 2014 with no interest as original note was a discount note. There were no associated warrants with this transaction. The conversion price for this convertible note shall
be equal to eighty percent (80%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal Market for the twenty trading days preceding a conversion date but in no event greater than $.02. On February 21, 2013, the note holder surrendered his note to the Company as part of the exchange agreements whereas the Company issued a new consolidated note with new terms and maturity date for the various previous outstanding notes held by the debt holder. There were no warrants to surrender. Total conversions of $133,560 from this particular portion of the overall consolidated note were made for the issuance of shares of common stock.
|
(v)
|
February 21, 2013 Consolidated Convertible Notes
|
On February 21, 2013, all previous convertible notes payable with outstanding balances totaling $5,020,944 were surrendered by the debt holders to the Company through exchange agreements whereas the Company issued one consolidated note to each debt holder for the total outstanding convertible note amounts. In addition and on the same date, all outstanding Class A warrants associated with these convertible note payables totaling 212,501,323/425,003 (before and after reverse stock split) Class A warrants were surrendered by the debt holders to the Company in which the Company issued additional convertible notes payable for the total amount of $350,000. All applicable 181,818/364 (before and after reverse stock split) Class B warrants were cancelled as well. Both the surrendered convertible notes payable for $5,020,944 and warrants for $350,000 were combined into one new convertible note payable per debt holder for a grand total of $5,370,944. All of these consolidated notes contain the same terms, maturity dates and conversion criteria and replace all terms, conditions and conversion criteria contained in the surrendered notes. These notes have a maturity date of February 21, 2015 and an interest rate of 4%. The
conversion price per share shall be equal to seventy-five percent (75%) of the average of the three lowest closing bid prices for the common stock as reported by Bloomberg L.P. for the principal market for the twenty trading days preceding a conversion date but in no event greater than $0.02/$10.00 (before and after reverse stock split). Each conversion submitted by a holder must be at least the lesser of (i) $10,000 of principal and interest or (ii) the balance due on the note. In addition, another new convertible note was issued for $121,327 to one of the accredited debt holders for their efforts in assisting the Company with these consolidated notes, warrants and modifications. The amount was determined at 5% of the then outstanding balance of all the convertible notes payable held by the debt holder. This note is identical to the above notes for the terms, conversion criteria and maturity date. No accrued interest payable amounts were added to these new notes. A total of $181,981 in principal and $57,138 in accrued interest were converted into shares of common stock from February 21, 2013 through the fiscal year ended March 31, 2013.
Note 7 – Short Term Bridge Loans:
Summary of short-term bridge loan balances is as follows:
|
|
|
March 31,
2013
|
|
|
March 31,
2012
|
|
|
April 14, 2008 (a)
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
|
August 5, 2008 (b)
|
|
|
55,000
|
|
|
|
55,000
|
|
|
Total
|
|
$
|
115,000
|
|
|
$
|
115,000
|
|
April 14, 2008 financing
:
(a) On April 14, 2008, the Company entered into a financing arrangement that provided for the issuance of a $60,000 face value short-term bridge loan note payable due July 15, 2008 plus warrants to purchase (i) 5,000/10 (before and after reverse stock split) shares of our common stock and (ii) additional warrants to purchase 5,000/10 (before and after reverse stock split) shares of our common stock, representing an aggregate 10,000/20 (before and after reverse stock split) shares which all warrants have expired and are cancelled. We determined that the warrants issued in this financing arrangement meet the conditions for equity classification so we allocated the proceeds of the debt between the debt and the detachable warrants based on the relative fair value of the debt security and the warrants in accordance with the FASB Accounting Standards Codification.
We entered into the following Modification and Waiver Agreements related to the April 14, 2008 financing:
|
Date
|
|
Terms
|
|
Consideration
|
|
June 2008
|
|
Extend maturity to July 19, 2008
|
|
Warrants indexed to 2,500/5 (before and after reverse stock split) shares of common stock
|
|
September 2008
|
|
Extend maturity to December 15, 2008
|
|
6,000/12 (before and after reverse stock split) shares of restricted stock
|
|
January 2009
|
|
Extend maturity date to April 30, 2009
|
|
1) Warrants indexed to 6,000/12 (before and after reverse stock split) shares of common stock
2) 6,000/12 (before and after reverse stock split) shares of restricted stock
|
The modifications resulted in a loss on extinguishment of $171,622 in accordance with the Financial Accounting Standards Codification. On December 15, 2008, we were in default on the notes for non-payment of the required principal payment. The remedy for event of default was acceleration of principal and interest so they were recorded at face value. As of March 31, 2013, this April 14, 2008 note was considered in default for non-payment. The Company is trying to find the debt holder to extend the
due date of the note as the previous address is no longer valid. It was determined that the extension warrants required liability accounting and are being recorded at fair value with changes in fair value being recorded in derivative (income) expense. The exercise dates for all warrants other than 6,000/12 (before and after reverse stock split) warrants granted on January 27, 2009 have expired. The exercise price of the 6,000/12 (before and after reverse stock split) warrants was reduced again to $1.00/$500.00 (before and after reverse stock split) when the Company issued additional convertible instruments with a lower conversion rate on January 27, 2009. Associated warrants are recorded at fair value for each reporting period.
August 5, 2008 financing:
(b) On August 5, 2008, the Company entered into a financing arrangement that provided for the issuance of a $55,000 face value short term bridge loan, due September 5, 2008, plus warrants to purchase (i) 5,000/10 (before and after reverse stock split) shares of our common stock at an exercise price of $10.00/$5,000 (before and after reverse stock split) and (ii) additional warrants to purchase 5,000/10 (before and after reverse stock split) shares of our common stock at an exercise price of $15.00/$7,500 (before
and after reverse stock split), representing an aggregate 10,000/20 (before and after reverse stock split) shares as the exercise dates for these warrants have now expired. The due date of the loan was extended to December 15, 2008 with 5,500/11 (before and after reverse stock split) restricted shares of common stock issued as consideration. On December 15, 2008, we were in default on the notes for non-payment of the required principal payment. Remedies for an event of default are acceleration of principal and interest. There were no incremental penalties for the event of default; however the notes were recorded at face value. Remedies for an event of default are acceleration of principal and interest.
Note 7 – Short Term Bridge Loans:
August 5, 2008 financing (continued):
We also evaluated the warrants to determine if they required liability or equity accounting. The warrants issued in conjunction with the financing are redeemable for cash upon the occurrence of acquisition, merger or sale of substantially all assets of the Company in an all cash transaction; therefore, the FASB Accounting Standards Codification requires that they be recorded as derivative liabilities on our balance sheet and marked to fair value each reporting period. We allocated the proceeds of the debt to the warrants, and the remaining portion was allocated to the debt instrument. The fair value of the warrants using the Black-Scholes pricing model was $62,700 and since the fair value of the warrants exceeded the proceeds from the financing, we recorded a day-one derivative loss of $12,700.
On January 15, 2009, we extended the term on the note from December 15, 2008 to April 30, 2009, and we issued investor warrants to purchase 5,500/11 (before and after reverse stock split) shares of our common stock and 5,500/11 (before and after reverse stock split) shares of restricted common stock as consideration for the extension. We recorded a loss on extinguishment of debt of $2,112 in accordance with the FASB Accounting Standards Codification. As of December 31, 2012, this note was considered in default for non-payment. The debt holder is a board director and will extend the note once we locate the debt holder of the above April 14, 2008 debt.
The exercise price of the warrants was reduced to $3.30/$1,650 (before and after reverse stock split) when the Company issued additional convertible instruments with a lower conversion rate on December 18, 2008. The exercise price of the warrants was reduced again to $1.00/$500.00 (before and after reverse stock split) when the Company issued additional convertible instruments with a lower conversion rate on January 27, 2009. Associated warrants are recorded at fair value for each reporting period.
Note 8 – Notes Payable (non-convertible):
For the period ended March 31, 2011, we paid $23,750 as part of a promissory note in the total principal amount of $34,000 as a final settlement amount for a previous license agreement. The remaining amount due of $10,250 was required to be settled through monthly payments of $4,250 through December, 2010. Although we did not make all payments for the year ended March 31, 2013, we anticipate making those payments in 2013 when additional capital is available.
On January 26, 2011, we entered into a promissory note with our previous landlord in the principal amount of $75,762. This amount is due June 30, 2011 together with interest of 10% computed on the basis of the actual number of days elapsed over a 360-day year on the unpaid balance. The default rate shall be a per annum interest rate equal to the maximum amount permitted by applicable law as we currently use 15%. Although we have not paid this note yet, we anticipate making a payment pending a future financing. On October 12, 2012, the previous landlord sold $20,000 of the promissory note to another accredited investor (see Note 6(u)-i) resulting in an outstanding amount of $55,762. This new replacement $20,000 note shall have the same terms as the original note except this new note shall indicate that the note was originally issued to the Seller on January 26, 2011 and shall be convertible into the Company’s common stock, at any time at an initial conversion price per share equal to twenty five percent (25%) of the average of the lowest three (3) closing bid prices for the Company’s common stock during the ten (10) trading days immediately preceding a conversion date and shall have a limitation on conversion equal to 9.99% of the Company’s outstanding common stock. The buyer of this note converted the entire $20,000 into shares of common stock.
On June 14 2012, we entered into two promissory notes for $100,000 and $40,000, respectively, with two current accredited investors. These notes are subject to an interest rate of ten percent (10%) and are due the sooner of (i) October 14, 2012 or (ii) from the proceeds of the next funding. We received the $100,000 payment on June 27, 2012 and the $40,000 payment on July 9, 2012. The amounts are still outstanding, and we accrue interest at the default interest rate of 18%. We expect to convert these notes into convertible notes payable later in 2013.
On June 26, 2012, we entered into a promissory note of $110,000 with a current accredited investor. We agreed to pay a finder’s fee of $10,000 as we received the net payment of $100,000 on June 28, 2012. The note is subject to an interest rate of ten percent (10%) and is due the sooner of (i) October 14, 2012 or (ii) from the proceeds of the next funding. The amount is still outstanding, and we accrue interest at the default interest rate of 18%. We expect to convert these notes into convertible notes payable later in 2013.
Note 9 – Derivative Liabilities:
The following table summarizes the components of derivative liabilities as of March 31, 2013 and 2012:
|
Financing arrangement giving rise to d
erivative financial instruments
|
|
March
31,
|
|
|
March
31,
|
|
|
|
|
|
|
2013
|
|
|
2012
|
|
|
$ 600,000
|
|
Face Value Convertible Note Financing
|
|
$
|
-
|
|
|
$
|
3,913
|
|
|
$ 500,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
2,964
|
|
|
$ 100,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
593
|
|
|
$ 120,000
|
|
Face Value Short Term Bridge Loan Financing
|
|
|
2
|
|
|
|
12
|
|
|
$ 120,000
|
|
Face Value Short Term Bridge Loan Financing
|
|
|
-
|
|
|
|
12
|
|
|
$ 60,000
|
|
Face Value Short Term Bridge Loan Financing
|
|
|
-
|
|
|
|
6
|
|
|
$ 33,000
|
|
Face Value Short Term Bridge Loan Financing
|
|
|
-
|
|
|
|
3
|
|
|
$ 120,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
241
|
|
|
$ 60,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
121
|
|
|
$ 200,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
837
|
|
|
$ 161,111
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
674
|
|
|
$ 50,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
209
|
|
|
$ 55,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
209
|
|
|
$ 137,500
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
575
|
|
|
$ 55,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
230
|
|
|
$ 900,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
113,810
|
|
|
$ 400,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
31,102
|
|
|
$ 600,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
89,678
|
|
|
$ 221,937
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
44,502
|
|
|
$ 500,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
57,528
|
|
|
$ 1,000,000
|
|
Face Value Convertible Note Financing
|
|
|
-
|
|
|
|
76,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
$
|
2
|
|
|
$
|
423,262
|
|
Prior to February 21, 2013, we estimated fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring fair values. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes-Merton option valuation technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. For complex hybrid instruments, such as convertible promissory notes that include embedded conversion options, puts and redemption features embedded in, we generally use techniques that embody all of the requisite assumptions (including credit risk, interest-rate risk, dilution and exercise/conversion behaviors) that are necessary to fair value these more complex instruments. For forward contracts that contingently require net-cash settlement as the principal means of settlement, we project and discount future cash flows applying probability-weightage to
Note 9 – Derivative Liabilities (continued):
multiple possible outcomes. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, our income will reflect the volatility in these estimate and assumption changes. As of February 21, 2013, all warrants associated with convertible notes payable were surrendered by the debt holders to the Company through exchange agreements whereas the Company issued new convertible notes payable to these debt holders for a total of $350,000. As such, derivative liabilities will be immaterial and will only relate to outstanding warrants associated with other non-convertible loans.
Note 10 – Transactions with Related Parties:
In connection with the reverse merger (see Note 1), we assumed $47,963 in advances payable to the officers of MHHI in which we paid $1,500 in January, 2009 and issued 25,000/50 (before and after reverse stock split) shares of common at $1.00/$500.00 (before and after reverse stock split) per share or $25,000, resulting in an outstanding balance of $21,463 that is due. These advances are non-interest bearing and payable upon demand.
In addition, the Company previously issued aggregate notes of $100,000 to Roy Warren, the Company’s CEO, an accredited investor with whom the Company entered into subscription agreements for 10% convertible notes (see Note 6(b)). However Roy Warren assigned the $100,000 notes to another party. During the quarter ended September 30, 2009, 9,000,000 shares of Series A Preferred, convertible into 54,000,000 shares of common stock at the option of the holder, were granted to Roy Warren (see Note 11). During the quarter ended March, 31, 2013, 51 shares of Series A-1 Preferred, convertible into 306 shares of common stock at the option of the holder, were granted to Roy Warren for services rendered (see Note 11(a)).
H. John Buckman is a board director of the company and is a debt holder of the company whereas the Company issued him a note payable at the face value of $55,000. He also has a total of 5,500/11 (before and after reverse stock split) Class A warrants at an exercise price of $1.00/$500.00 (before and after reverse stock split) with a life of three to five years, and he will be entitled to an additional 5,000/10 (before and after reverse stock split) warrants with at an exercise price of $15.00/$7,500 (before and after reverse stock split) if he exercises the same number of specific Class A warrants. He also received 11,000/22 (before and after reverse stock split) shares of restricted stock that related to this note payable, 1,200/3 (before and after reverse stock split) shares of restricted stock for being a Director and 150,000/300 (before and after reverse stock split) shares of restricted stock for his services related to a November, 2009 financing (total of 162,200/325 shares of restricted stock) (before and after reverse stock split).
Note 11 – Stockholders’ Deficit:
(a)
Series A Preferred Stock
:
The Company’s articles of incorporation authorize the issuance of 20,000,000 shares of preferred stock which the Company has designated as Series A Preferred (“Series A” and “Series A-1”), $.00001 par value. Each share of Series A and A-1 is convertible into six shares of the Company’s common stock for a period of five years from the date of issue. The conversion basis is not adjusted for any stock split or combination of the common stock. The Company must at all times have sufficient common shares reserved to effect the conversion of all outstanding Series A and A-1 Preferred. The holders of the Series A and A-1 Preferred shall be entitled to receive common stock dividends when, as, if and in the amount declared by the directors of the Company to be in cash or in market value of the Company’s common stock. The Company is restricted from paying dividends or making distributions on its common stock without the approval of a majority of the Series A and A-1 holders. The Series A and A-1 shall be senior to the Common Stock and any other series or class of the Company’s Preferred Stock. The Series A and A-1 has liquidation rights in the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the holders of the Series A and A-1 then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, before any payment or declaration and setting apart for payment of any amount shall be made in respect of any outstanding capital stock of the Company, an amount equal to $.00001 per share, The Company, at the option of its directors, may at any time or from time to time redeem the whole or any part of the outstanding Series A. Upon redemption, the Company shall pay for each share redeemed the amount of $2.00 per share, payable in cash, plus a premium to compensate the original purchaser(s) for the investment risk and cost of capital equal to the greater of (a) $2.00 per share, or (b) an amount per share equal to fifty percent (50%) of the market capitalization of the Company on the date of notice of such redemption divided by 2,000,000. We have evaluated our Series a Preferred Stock and determined these shares required equity classification because the number of shares convertible into common stock is fixed and reserved. Redemption of these preferred shares cannot be affected because of the Company’s stockholders’ deficit.
Note 11 – Stockholders’ Deficit (continued):
(a)
Series A Preferred Stock (continued)
:
During the quarter ended September 30, 2009, 9,000,000 shares of Series A Preferred were granted to Roy Warren. We recorded a non-cash expense for $1,620,000 which is based on the then market price of $0.03 per common share times the convertible stock equivalents (9,000,000 preferred shares x 6 = 54,000,000 common stock equivalents). These shares have specific voting power in that Roy Warren has voting rights for the 54,000,000 common stock equivalents. The Board of Directors on September 4, 2009
approved an amendment whereas Section 2(A) of the Certificate of Designation is hereby declared in its entirety, and the following shall be substituted in lieu thereof-Rights, Powers and Preferences: The Series A shall have the voting powers, preferences and relative, participating, optional and other special rights, qualifications, limitations and restrictions as follows: Designation and Amount – Out of the Twenty Million (20,000,000) shares of the $0.00001 par value authorized preferred stock, all Twenty Million (20,000,000) shares shall be designated as shares of “Series A.”
During the quarter ended March, 31, 2013, 51 shares of Series A-1 Preferred, convertible into 306 shares of common stock at the option of the holder, were granted to Roy Warren for services rendered. We recorded a non-cash expense for $0.09 which is based on the then market price of $0.0003 per common share times the convertible stock equivalents (51 preferred shares x 6 = 306 common stock equivalents).
(b)
Common Stock Warrants
As of March 31, 2013, the Company had the following outstanding warrants:
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Reverse Stock Split
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Expiration
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Warrants
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Exericse
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Restated
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Restated
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Issued Class A Warrants
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Grant Date
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Date
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Granted
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Price
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Warrants
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Price
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April, 2008 Supply Agreement
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4/16/2008
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4/15/2013
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5,000
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$
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15.00
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10
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$
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7,500.00
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Aprl, 2008 Finder's Fees
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4/14/2008
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4/13/2013
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3,125
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$
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10.00
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6
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|
$
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5,000.00
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May, 2008 Finder's Fees
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5/19/2008
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5/18/2013
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1,875
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$
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10.00
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4
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$
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5,000.00
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January, 2009 Debt Extensions
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1/27/2009
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1/26/2014
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26,800
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$
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1.00
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54
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$
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500.00
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September, 2010 Debt Extension
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9/9/2010
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9/9/2013
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51,000
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$
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0.05
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|
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102
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$
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25.00
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January, 2011 Debt Extension
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1/11/2011
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1/10/2014
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12,000
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$
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0.05
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24
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$
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25.00
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Total issued Class A warrants
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99,800
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|
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|
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200
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Unissued Class B warrants (a):
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April, 2008 Finder's Fees
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3,125
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6
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May, 2008 Finder's Fees
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1,875
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4
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Total unissued Class B Warrants
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|
|
5,000
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|
|
|
|
|
|
10
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|
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|
|
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|
|
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|
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Total Warrants
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|
|
|
|
|
|
104,800
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|
|
|
|
|
|
|
210
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|
(a) When certain Class A warrants are exercised, holders of these warrants will receive an equal number of Class B warrants
with an exercise price of $15.00/$7,500 (before and after reverse stock split).
Note 11 – Stockholders’ Deficit (continued):
(
b)
Common Stock Warrants (continued)
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Weighted
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Reverse Stock Split
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Average
|
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Restated
|
|
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Restated
|
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Shares
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Price
|
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Warrants
|
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Price
|
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Activity for our common stock warrants is presented below:
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Total warrants outstanding March 31, 2011
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116,470,441
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$
|
1.60
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232,941
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|
$
|
800.00
|
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|
|
|
|
|
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|
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|
|
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New warrants granted
|
|
|
97,500,000
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|
|
|
0.02
|
|
|
|
195,000
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|
|
$
|
10.00
|
|
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Warrants that expired
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|
|
(70,000
|
)
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|
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|
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(140
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)
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Total warrants outstanding March 31, 2012
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|
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213,900,441
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0.04
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427,801
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$
|
20.00
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Cashless exercise of warrants
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(1,000,000
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)
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|
|
|
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(2,000
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)
|
|
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Warrants that expired
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|
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(112,500
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)
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|
|
|
|
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(225
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)
|
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|
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|
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Warrants surrendered for exchange of new convertible notes
|
|
|
(212,501,323
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)
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|
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(425,002
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)
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|
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|
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Warrants (Class B) cancelled for exchange of new convertible notes
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|
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(181,818
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)
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|
|
|
|
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(364
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)
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|
Total warrants outstanding March 31, 2013
|
|
|
104,800
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|
|
$
|
2.19
|
|
|
|
210
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|
|
$
|
1,095.00
|
|
Cashless exercises of 1,000,000/2,000 (before and after reverse stock split) warrants were made for the fiscal year ended March 31, 2013. No warrants were exercised for the fiscal year ended March 31, 2013.
(c)
Common Stock:
At March 31, 2013, we had issued and outstanding 9,207,273,234/18,414,547 (before and after reverse stock split) shares of common stock of which 15,125,562/30,251 (before and after reverse stock split) shares are owned by our two officers. Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the shareholders. Holders of common stock have no cumulative voting rights. In the event of liquidation, dissolution or winding down of the Company, the holders of shares of common stock are entitled to share, pro rata, all assets remaining after payment in full of all liabilities. Holders of common stock have no preemptive rights to purchase our common stock. There are no conversion rights or redemption or sinking fund provisions with respect to the common stock. All of the outstanding shares of common stock are validly issued, fully paid and non-assessable.
Common Stock Issued for the Year Ended March 31, 2013:
These figures are not restated for the reverse stock split.
On April 3, 2012, we issued 6,000,000 shares of common stock pursuant to two conversions of January, 2011 convertible notes for $10,443 and accrued interest for $2,877 at a conversion price of $.00222.
On April 4, 2012, we issued 663,800 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $1,444 at a conversion price of $.002175.
Note 11 – Stockholders’ Deficit (continued):
Common Stock Issued for the Year Ended March 31, 2013 (continued):
On April 5, 2012, we issued 62,332 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $132 at a conversion price of $.002123.
On April 5, 2012, we issued 2,843,146 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $873 and $5,163 accrued interest at a conversion price of $.002123.
On April 10, 2012, we issued 23,809,524 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $50,000 at a conversion price of $.0021.
On April 10, 2012, we issued 3,225,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $6,702 at a conversion price of $.002078.
On April 10, 2012, we issued 3,225,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $6,702 at a conversion price of $.002078.
On April 11, 2012, we issued 3,250,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $6,347 at a conversion price of $.002603.
On April 16, 2012, we issued 1,900,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $3,178 at a conversion price of $.0016725.
On April 26, 2012, we issued 5,800,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $7,076 at a conversion price of $.00122.
On May 17, 2012, we issued 2,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $2,536 at a conversion price of $.001268.
On May 17, 2012, we issued 6,500,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes accrued interest for $8,242 at a conversion price of $.001268.
On May 17, 2012, we issued 60,000,000 shares of common stock pursuant to a conversion of February, 2008 convertible notes for $76,140 at a conversion price of $.001269.
On May 17, 2012, we issued 44,970,414 shares of common stock pursuant to a conversion of June, 2011 convertible notes accrued interest for $57,000 at a conversion price of $.0012675.
On May 25, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $3,285 at a conversion price of $.001095.
On May 29, 2012, we issued 46,728,972 shares of common stock pursuant to a conversion of November, 2011 convertible notes for $50,000 at a conversion price of $.00107.
On May 31, 2012, we issued 2,500,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $2,588 at a conversion price of $.001035.
On June 1, 2012, we issued 363,056 shares of common stock pursuant to a cashless exercise of 1,000,000 warrants from the March, 2011 financing.
On June 5, 2012, we issued 5,100,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $4,549 and accrued interest for $806 at a conversion price of $.00105.
On June 11, 2012, we issued 4,900,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $5,145 at a conversion price of $.00105.
Note 11 – Stockholders’ Deficit (continued):
Common Stock Issued for the Year Ended March 31, 2013 (continued):
On June 19, 2012, we issued 40,000,000 shares of common stock pursuant to a conversion of February, 2008 convertible notes for $40,000 at a conversion price of $.001.
On June 22, 2012, we issued 6,900,000 shares of common stock pursuant to conversion of July, 2010 accrued interest for $8,211 at a conversion price of $.00119.
On June 25, 2012, we issued 5,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $4,000 at a conversion price of $.0008.
On July 1, 2012, we issued 36,000,000 shares of common stock pursuant to two conversions of July, 2010 convertible notes for a total of $24,000 and $4,800 accrued interest at a conversion price of $.0008.
On July 27, 2012, we issued 50,000,000 shares of common stock pursuant to a conversion of February, 2008 convertible notes for $29,300 at a conversion price of $.000586.
On August 8, 2012, we issued 4,950,000 shares of common stock pursuant to terms of certain athlete contracts valued at $99,000 with conversion at the contracted $.02 conversion price.
On August 15, 2012, we issued 8,853,333 shares of common stock pursuant to a conversion of March, 2011 debt for $805 and $3,179 accrued interest at a conversion price of $.00045.
On August 15, 2012, we issued 16,626,267 shares of common stock pursuant to a conversion of July, 2010 debt of $7,482 at a conversion price of $.00045.
On August 16, 2012, we issued 4,000,000 shares of common stock pursuant to a conversion of March, 2011 debt of $1,720 at a conversion price of $.00043.
On August 22, 2012, we issued 40,000,000 shares of common stock pursuant to a conversion of February, 2008 debt of $16,000 at a conversion price of $.0004.
On September 5, 2012, we issued 60,000,000 shares of common stock pursuant to a conversion of July, 2011 debt that was purchased in August, 2012 by another accredited investor of $24,000 at a conversion price of $.0004.
On September 5, 2012, we issued 60,000,000 shares of common stock pursuant to a conversion of July, 2010 debt of $24,000 at a conversion price of $.0004.
On September 6, 2012, we issued 10,000,000 shares of common stock pursuant to a conversion of March, 2011 debt of $4,000 at a conversion price of $.0004.
On September 19, 2012, we issued 15,000,000 shares of common stock pursuant to a conversion of March, 2011 debt of $10,125 at a conversion price of $.000675.
On September 18, 2012, we issued 5,000,000 shares of common stock pursuant to a conversion of July, 2010 debt of $3,375 at a conversion price of $.000675.
On September 27, 2012, we issued 60,000,000 shares of common stock pursuant to a conversion of July, 2011 debt that was purchased in August, 2012 by another accredited investor of $22,500 at a conversion price of $.000375.
On October 5, 2012, we issued 10,666,667 shares of common stock pursuant to a conversion of July, 2010 accrued interest for $4,000 at a conversion price of $.000375.
On October 5, 2012, we issued 64,733,333 shares of common stock pursuant to a conversion of July, 2011 debt that was purchased in August, 2012 by another accredited investor of $24,275 at a conversion price of $.000375.
Note 11 – Stockholders’ Deficit (continued):
Common Stock Issued for the Year Ended March 31, 2013 (continued):
On October 8, 2012, we issued 26,246,627 shares of common stock pursuant to a conversion of November, 2011 debt of $9,360 and accrued interest of $1,926 at a conversion price of $.00043.
On October 10, 2012, we issued 50,000,000 shares of common stock pursuant to a conversion of February, 2008 debt of $20,000 at a conversion price of $.0004.
On October 10, 2012, we issued 20,000,000 shares of common stock pursuant to a conversion of June, 2011 debt of $8,000 at a conversion price of $.0004.
On October 11, 2012, we issued 75,000,000 shares of common stock pursuant to a conversion of February, 2008 debt of $30,000 at a conversion price of $.0004.
On October 11, 2012, we issued 15,000,000 shares of common stock pursuant to a conversion of March, 2011 debt of $6,375 at a conversion price of $.000425.
On October 11, 2012, we issued 9,941,176 shares of common stock pursuant to a conversion of July, 2011 debt that was purchased in August, 2012 by another accredited investor of $4,225 at a conversion price of $.000425.
On October 11, 2012, we issued 10,000,000 shares of common stock pursuant to a conversion of June, 2011 debt of $5,250 at a conversion price of $.000525.
On October 18, 2012, we issued 86,000,000 shares of common stock pursuant to a conversion of July, 2010 debt of $51,600 at a conversion price of $.0006.
On October 24, 2012, we issued 50,000,000 shares of common stock pursuant to a conversion of February, 2008 debt of $21,334 at a conversion price of $.00042667.
On October 24, 2012, we issued 44,444,444 shares of common stock pursuant to a conversion of an October, 2012 purchase of a non-convertible note of $20,000 at a conversion price of $.00045.
On November 8, 2012, we issued 130,000,000 shares of common stock pursuant to a conversion of February, 2008 debt of $38,376 and accrued interest of $24,024 at a conversion price of $.00048.
On November 7, 2012, we issued 15,000,000 shares of common stock pursuant to a conversion of June, 2011 debt of $6,750 at a conversion price of $.00045.
On November 8, 2012, we issued 155,520,833 shares of common stock pursuant to a conversion of November, 2009 debt that was purchased in October, 2012 by another accredited investor of $74,650 at a conversion price of $.00048.
On November 19, 2012, we issued 104,895,833 shares of common stock pursuant to a conversion of November, 2009 debt that was purchased in November, 2012 by another accredited investor of $50,350 at a conversion price of $.00048.
On November 20, 2012, we issued 25,900,000 shares of common stock pursuant to a conversion of July, 2010 debt of $11,137 at a conversion price of $.00043.
On November 20, 2012, we issued 100,000,000 shares of common stock pursuant to a conversion of February, 2008 accrued interest of $45,300 at a conversion price of $.000453.
On November 21, 2012, we issued 32,468,244 shares of common stock pursuant to a conversion of March, 2011 debt of $10,450 and $4,160 accrued interest at a conversion price of $.00045.
On November 26, 2012, we issued 32,997,040 shares of common stock pursuant to a conversion of March, 2011 debt of $8,969 and accrued interest of $3,405 at a conversion price of $.000375.
Note 11 – Stockholders’ Deficit (continued):
Common Stock Issued for the Year Ended March 31, 2013 (continued):
On December 3, 2012, we issued 25,000,000 shares of common stock pursuant to a conversion of June, 2011 debt of $7,500 at a conversion price of $.0003.
On December 5, 2012, we issued 150,000,000 shares of common stock pursuant to a conversion of November, 2009 debt that was purchased in November, 2012 by another accredited investor of $36,000 at a conversion price of $.00024.
On December 6, 2012, we issued 30,000,000 shares of common stock pursuant to a conversion of June, 2011 debt of $6,750 at a conversion price of $.000225.
On December 11, 2012, we issued 100,000,000 shares of common stock pursuant to a conversion of February, 2008 accrued interest of $24,000 at a conversion price of $.00024.
On December 17, 2012, we issued 95,000,000 shares of common stock pursuant to a conversion of July, 2010 debt of $21,375 at a conversion price of $.000225.
On December 17, 2012, we issued 100,000,000 shares of common stock pursuant to a conversion of February, 2008 accrued interest of $24,000 at a conversion price of $.00024.
On December 18, 2012, we issued 82,568,075 shares of common stock pursuant to a conversion of February, 2008 accrued interest of $17,587 at a conversion price of $.000213.
On December 20, 2012, we issued 205,000,000 shares of common stock pursuant to a conversion of November, 2009 debt that was purchased in November, 2012 by another accredited investor of $32,800 at a conversion price of $.00016.
On January 2, 2013, we issued 331,875,000 shares of common stock pursuant to a conversion of November, 2009 debt that was purchased in November, 2012 by another accredited investor of $53,100 at a conversion price of $.00016.
On January 4, 2013, we issued 125,000,000 shares of common stock pursuant to a conversion of September, 2008 debt of $20,000 at a conversion price of $.00016.
On January 10, 2013, we issued 175,000,000 shares of common stock pursuant to a conversion of January, 2009 debt of $28,000 at a conversion price of $.00016.
January 11, 2013, we issued 42,812,500 shares of common stock pursuant to a conversion of November, 2009 debt that was purchased in November, 2012 by another accredited investor of $6,850 at a conversion price of $.00016.
January 11, 2013, we issued 223,125,000 shares of common stock pursuant to a conversion of December, 2009 debt that was purchased in December, 2012 by another accredited investor of $35,700 at a conversion price of $.00016.
On January 15, 2013, we issued 50,000,000 shares of common stock pursuant to a conversion of September, 2008 debt of $7,500 at a conversion price of $.00015.
On January 16, 2013, we issued 200,000,000 shares of common stock pursuant to a conversion of September, 2008 debt of $32,000 at a conversion price of $.00016.
On January 16, 2013, we issued 87,420,000 shares of common stock pursuant to a conversion of July, 2010 accrued interest of $13,113 at a conversion price of $.00015.
On January 17, 2013, we issued 190,000,000 shares of common stock pursuant to two conversions of July, 2010 debt totaling $28,500 at a conversion price of $.00015.
January 17, 2013, we issued 155,000,000 shares of common stock pursuant to a conversion of September, 2008 debt that was purchased in December, 2012 by another accredited investor of $24,800 at a conversion price of $.00016.
Note 11 – Stockholders’ Deficit (continued):
Common Stock Issued for the Year Ended March 31, 2013 (continued):
January 23, 2013, we issued 255,312,500 shares of common stock pursuant to a conversion of September, 2008 debt that was purchased in December, 2012 by another accredited investor of $40,850 at a conversion price of $.00016.
On January 29, 2013, we issued 37,160,000 shares of common stock pursuant to a conversion of February, 2012 debt of $5,574 at a conversion price of $.00015.
January 28, 2013, we issued 165,468,750 shares of common stock pursuant to a conversion of September, 2008 debt that was purchased in December, 2012 by another accredited investor of $26,475 at a conversion price of $.00016.
On February 5, 2013, we issued 200,000,000 shares of common stock pursuant to a conversion of January, 2009 debt of $32,000 at a conversion price of $.00016.
On February 6, 2013, we issued 138,593,750 shares of common stock pursuant to a conversion of September, 2008 debt that was purchased in December, 2012 by another accredited investor of $22,175 at a conversion price of $.00016.
On February 7, 2013, we issued 200,000,000 shares of common stock pursuant to a conversion of January, 2009 debt of $32,000 at a conversion price of $.00016.
On February 11, 2013, we issued 70,000,000 shares of common stock pursuant to a conversion of March, 2011 debt of $10,500 at a conversion price of $.00015.
On February 13 2013, we issued 87,146,666 shares of common stock pursuant to a conversion of July, 2010 debt for $4,837 and accrued interest for $8,233 at a conversion price of $.00015.
On February 21, 2013, we issued 100,000,000 shares of common stock pursuant to a conversion of June, 2011 debt of $7,500 at a conversion price of $.000075.
On February 21 2013, we issued 593,533,333 shares of common stock pursuant to a conversion of September, 2008 debt that was purchased in January, 2013 by another accredited investor of $44,515 at a conversion price of $.000075.
On February 22, 2013, we issued 190,000,000 shares of common stock pursuant to two conversions of July, 2010 debt totaling $14,250 at a conversion price of $.000075.
On February 6, 2013, we issued 138,593,750 shares of common stock pursuant to a conversion of September, 2008 debt that was purchased in December, 2012 by another accredited investor of $22,175 at a conversion price of $.00016.
On March 6, 2013, we issued 100,000,000 shares of common stock pursuant to a conversion of February, 2012 debt of $7,500 at a conversion price of $.000075.
On March 12, 2013, we issued 250,000,000 shares of common stock pursuant to a conversion of July, 2010 accrued interest of $18,750 at a conversion price of $.000075.
On March 14 2013, we issued 100,000,000 shares of common stock pursuant to a conversion of June, 2011 debt of $7,500 at a conversion price of $.000075.
On March 18, 2013, we issued 593,666,667 shares of common stock pursuant to a conversion of September, 2008 debt that was purchased in January, 2013 by another accredited investor of $44,525 at a conversion price of $.000075.
On March 20 2013, we issued 200,000,000 shares of common stock pursuant to a conversion of January, 2009 debt of $6,834 and accrued interest of $8,166 at a conversion price of $.000075.
On March 28, 2013, we issued 593,600,000 shares of common stock pursuant to a conversion of September, 2008 debt that was purchased in January, 2013 by another accredited investor of $44,520 at a conversion price of $.000075.
Note 11 – Stockholders’ Deficit (continued):
Common Stock Issued for the Year Ended March 31, 2013 (continued):
On March 28 2013, we issued 402,960,000 shares of common stock pursuant to a conversion of July, 2010 accrued interest of $30,222 at a conversion price of $.000075.
Common Stock Issued for the Year Ended March 31, 2012:
These figures are not restated for the reverse stock split
On April 1, 2011, we issued a total of 351,000 shares of common stock pursuant to two conversions of October, 2007 convertible notes (later assigned to new debt holders in July, 2010) for $4,065 and $1,200 (total of $5,265) at a conversion price of $.015.
On April 6, 2011, we issued 260,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $3,822 at a conversion price of $.0147.
On April 14, 2011, we issued 89,660 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $1,816 at a conversion price of $.02025.
On May 2, 2011, we issued 1,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $12 at a conversion price of $.01225.
On May 5, 2011, certain employees converted a total $327,248 of past due salaries into 22,261,770 shares of common stock at a conversion price of $.0147.
On May 5, 2011, we issued 2,000,000 shares of common stock to an investor relations firm for services rendered at a conversion price of $.0157 valued at $31,400.
On May 6, 2011, we issued 6,000,000 shares of common stock for the conversion of the original April 9, 2008 short-term bridge loan with principal balance of $120,000 at a conversion price of $.02.
Also on May 6, 2011, we issued 2,952,958 shares of common stock pursuant to a conversion of certain March 2009 convertible notes for $37,001 at a conversion price of $.01253.
On May 12, 2011, we issued 100,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $1,150 at a conversion price of $.0115.
On May 13, 2011, we issued 86,136 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $991 at a conversion price of $.0115.
On May 17, 2011, we issued 67,500 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $768 at a conversion price of $.011375.
On May 18, 2011, we issued 70,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $718 at a conversion price of $.01025.
On May 23, 2011, we issued 211,200 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $1,785 at a conversion price of $.0085.
On May 25, 2011, we issued 321,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $2,688 at a conversion price of $.008375.
On June 1, 2011, we issued 192,800 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $1,591 at a conversion price of $.00825.
Note 11 – Stockholders’ Deficit (continued):
(c)
Common Stock Issued for the Year Ended March 31, 2012 (continued):
On June 7, 2011, we issued 139,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $938 at a conversion price of $.00675.
On June 13, 2011, we issued 175,700 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $1,120 at a conversion price of $.006375.
On June 14, 2011, we issued 207,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $1,320 at a conversion price of $.006375.
On June 15, 2011, we issued 156,600 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $979 at a conversion price of $.00625.
On June 20, 2011, we issued 400,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $2,500 at a conversion price of $.00625.
On June 22, 2011, we issued 400,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $2,560 at a conversion price of $.0064.
On June 30, 2011, we issued 500,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $3,213 at a conversion price of $.006425.
On July 20, 2011, we issued 3,079,286 shares of common stock pursuant to a conversion of certain March, 2009 convertible notes for $21,555 at a conversion price of $.007.
On July 21, 2011, we issued 1,500,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $10,688 at a conversion price of $.007125.
On July 25, 2011, we issued 5,000,000 shares of common stock pursuant to a conversion of January, 2008 convertible notes for $33,484 and another $1,356 for the original October, 2007 convertible notes for a total of $34,840 at a conversion price of $.006968.
On July 27, 2011, we issued 500,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $3,188 at a conversion price of $.006375.
On August 3, 2011, we issued 500,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $3,188 at a conversion price of $.00436.
On August 11, 2011, we issued 5,376,344 shares of common stock pursuant to a conversion of certain March, 2009 convertible notes for $25,000 at a conversion price of $.00465.
On August 11, 2011, we issued 200,000 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $872 at a conversion price of $.00436.
On August 31, 2011, we issued 3,000,000 shares of restricted common stock to outside legal counsel for past due services at a conversion price of $.002 with a recorded value of $6,000.
On September 1, 2011, we issued 1,338,678 shares of common stock pursuant to a conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for $2,470 at a conversion price of $.001845.
On September 13, 2011, we issued 4,513,899 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $5,530 at a conversion price of $.001225.
On September 27, 2011, we issued 2,800,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $2,800 at a conversion price of $.001.
Note 11 – Stockholders’ Deficit (continued):
(c)
Common Stock Issued for the Year Ended March 31, 2012 (continued):
On October 4, 2011, we issued 6,000,263 shares of common stock pursuant to a conversion of accrued interest associated with
February, 2008 convertible notes in the amount of $5,712 at a conversion price of $.000952.
On October 12, 2011, we issued 701,064 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $526 at a conversion price of $.00075.
On November 1, 2011, we issued 1,295,609 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $1,095 at a conversion price of $.000845.
On November 3, 2011, we issued 9,300,000 shares of common stock pursuant to conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for two conversions totaling $8,580 at a conversion price of $.000923.
On November 3, 2011, we issued 5,517,402 shares of common stock pursuant to conversion of January, 2011 convertible notes for three conversions totaling $5,091 at a conversion price of $.000923.
On November 8, 2011, we issued 5,437,815 shares of common stock pursuant to conversion of January, 2011 convertible notes for three conversions totaling $5,955 at a conversion price of $.001095.
On November 8, 2011, we issued 4,000,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes for $4,672 at a conversion price of $.001168.
On November 8, 2011, we issued 6,900,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $7,556 at a conversion price of $.001095.
On November 10, 2011, we issued 5,600,000 shares of common stock pursuant to conversion of original October, 2007 convertible notes (later assigned to a new debt holder in July, 2010) for two conversions totaling $6,748 at a conversion price of $.001205.
On November 10, 2011, we issued 2,440,987 shares of common stock pursuant to conversion of January, 2011 convertible notes for three conversions totaling $2,941 at a conversion price of $.001205.
On November 14, 2011, we issued 6,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $8,070 at a conversion price of $.001345.
On November 17, 2011, we issued 1,400,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $2,275 at a conversion price of $.001625.
On November 17, 2011, we issued 586,373 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $953 at a conversion price of $.001625.
On November 23, 2011, we issued 2,304,694 shares of common stock pursuant to conversion of January, 2011 convertible notes for two conversions totaling $3,914 at a conversion price of $.001518.
On November 23, 2011, we issued 2,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $3,035 at a conversion price of $.001518.
On November 28, 2011, we issued 3,309,051 shares of common stock pursuant to conversion of March, 2011 convertible notes for two conversions totaling $4,194 at a conversion price of $.001268.
On November 29, 2011, we issued 9,000,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes for $11,880 at a conversion price of $.00132.
On December 7, 2011, we issued 3,748,592 shares of common stock pursuant to conversion of March, 2011 convertible notes for two conversions totaling $3,490 plus $1,205 for one of the conversions at a conversion price of $.001253 to $.001268.
Note 11 – Stockholders’ Deficit (continued):
(c)
Common Stock Issued for the Year Ended March 31, 2012 (continued):
On December 7, 2011, we issued 501,236 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $628 at a conversion price range of $.001253.
On December 20, 2011, we issued 703,619 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $825 at a conversion price of $.001173.
On December 20, 2011, we issued 5,000,000 shares of common stock pursuant to conversion of March, 2011 convertible notes for two conversions totaling $5,863 at a conversion price of $.001173.
On December 30, 2011, company employees returned 27,918,336 shares of common stock previously granted to them earlier in the year for past due services in exchange for a similar number of employee stock options at an exercise price of $.02. These shares were cancelled and reduced the total outstanding number of common shares.
On December 31, 2011, we issued 3,134,422 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $2,701 at a conversion price of $.000863.
On January 10, 2012, we issued 7,000,000 shares of common stock pursuant to a conversion of October, 2011 convertible notes for $6,300 at a conversion price of $.0009.
On January 10, 2012, we issued 7,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $5,933 at a conversion price of $.000848.
On January 10, 2012, we issued 1,142,700 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $968 at a conversion price of $.000848.
On January 10, 2012, we issued 4,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $3,390 at a conversion price of $.000848.
On January 12, 2012, we issued 8,928,571 shares of common stock pursuant to a conversion of accrued interest from March, 2009 convertible notes for $8,000 at a conversion price of $.000896.
On January 20, 2012, we issued 2,000,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $1,630 at a conversion price of $.000815.
On January 20, 2012, we issued 4,541,178 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $3,701 at a conversion price of $.000815.
On January 20, 2012, we issued 4,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $3,260 at a conversion price of $.000815.
On January 23, 2012, we issued 1,355,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $1,104 at a conversion price of $.000815.
On January 23, 2012 and January 25, 2012, we issued 11,500,000 shares of common stock pursuant to conversion of October, 2007 convertible notes for two conversions totaling $9,994 at a conversion price of $.000869.
On January 25, 2012, we issued 11,150,000 shares of common stock pursuant to a conversion of $9,689 accrued interest for March, 2009 convertible notes at a conversion price of $.000869.
On January 25, 2012 and January 26, 2012, we issued 12,000,000 shares of common stock pursuant to conversion of March, 2011 convertible notes for four conversions totaling $9,780 at a conversion price of $.000815.
On January 25, 2012 and January 26, 2012, we issued 7,000,000 shares of common stock pursuant to conversion of July, 2010 convertible notes for two conversions totaling $5,705 at a conversion price of $.000815.
Note 11 – Stockholders’ Deficit (continued):
(c)
Common Stock Issued for the Year Ended March 31, 2012 (continued):
On January 25, 2012, we issued 11,000,000 shares of common stock pursuant to a conversion of January, 2008 convertible notes for $9,559 at a conversion price of $.000869.
On January 25, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $2,445 at a conversion price of $.000815.
On January 25, 2012, we issued 3,500,000 shares of common stock pursuant to conversion of January, 2011 convertible notes for two conversions totaling $2,853 at a conversion price of $.000815.
On January 26, 2012, we issued 4,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $3,260 at a conversion price of $.000815.
On January 26, 2012, we issued 4,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $3,260 at a conversion price of $.000815.
On January 26, 2012, we issued 10,000,000 shares of common stock pursuant to conversion of January, 2011 convertible notes for three conversions totaling $2,935 at a conversion price of $.000815.
On January 27, 2012, we issued 2,410,414 shares of common stock pursuant to a conversion of accrued interest for March, 2009 convertible notes for $2,095 at a conversion price of $.000869.
On January 27, 2012, we issued 12,267,120 shares of common stock pursuant to conversion of January, 2011 convertible notes for three conversions totaling $9,998 at a conversion price of $.000815.
On January 27, 2012, we issued 13,000,000 shares of common stock pursuant to conversion of March, 2011 convertible notes for two conversions totaling $10,595 at a conversion price of $.000815.
On January 27, 2012, we issued 2,800,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $2,282 at a conversion price of $.000815.
On January 27, 2012, we issued 8,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $6,520 at a conversion price of $.000815.
On January 27, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $2,445 at a conversion price of $.000815.
On January 27, 2012, we issued 8,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $4,075 at a conversion price of $.000815.
On January 27, 2012, we issued 16,000,000 shares of common stock pursuant to conversion of October, 2007 convertible notes for two conversions totaling $13,904 at a conversion price of $.000869.
On January 27, 2012, we issued 11,507,479 shares of common stock pursuant to a conversion of accrued interest for the January, 2009 convertible notes for $10,000 at a conversion price of $.000869.
On January 30, 2012, we issued 7,000,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes for $2,083 at a conversion price of $.000869.
On January 30, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $2,445 at a conversion price of $.000815.
On January 30, 2012 and January 31, 2012, we issued 21,000,000 shares of common stock pursuant to conversion of March, 2011 convertible notes for four conversions totaling $17,115 at a conversion price of $.000815.
Note 11 – Stockholders’ Deficit (continued):
(c)
Common Stock Issued for the Year Ended March 31, 2012 (continued):
On January 30, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $2,445 at a conversion price of $.001087.
On January 31, 2012, we issued 2,000,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $1,630 at a conversion price of $.000815.
On February 2, 2012, we issued 2,442,666 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $2,601 at a conversion price of $.001065.
On February 2, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $3,195 at a conversion price of $.001065.
On February 2, 2012, we issued 8,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $2,601 at a conversion price of $.001065.
On February 3, 2012, we issued 8,000,000 shares of common stock pursuant to conversion of January, 2011 convertible notes for three conversions totaling $13,261 at a conversion price of $.0010658.
On February 3, 2012, we issued 5,427,772 shares of common stock pursuant to conversion of March, 2011 convertible notes for two conversions totaling $13,565 at a conversion price of $.002315.
On February 6, 2012, we issued 5,743,130 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $18,234 at a conversion price of $.003175.
On February 8, 2012, we issued 1,000,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $3,175 at a conversion price of $.003175.
On February 9, 2012, we issued 1,500,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $4,763 at a conversion price of $.003175.
On February 9, 2012, we issued 6,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $19,050 at a conversion price of $.003175.
On February 9, 2012, we issued 6,500,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $20,638 at a conversion price of $.003175.
On February 10, 2012, we issued 3,359,033 shares of common stock pursuant to a conversion of January 2008 convertible notes for $2,919 at a conversion price of $.000869.
On February 13, 2012, we issued 4,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $12,820 at a conversion price of $.003205.
On February 13, 2012, we issued 5,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $16.025 at a conversion price of $.003205.
On February 13, 2012, we issued 1,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $3,205 at a conversion price of $.003205.
On February 13, 2012, we issued 533,550 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $1,710 at a conversion price of $.003205.
On February 14, 2012, we issued 4,7000,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $15,064 at a conversion price of $.003205.
Note 11 – Stockholders’ Deficit (continued):
(c)
Common Stock Issued for the Year Ended March 31, 2012 (continued):
On February 15, 2012, we issued 12,500,000 shares of common stock pursuant to a conversion of January, 2009 convertible notes for $12,500 at a conversion price of $.001.
On February 14, 2012, we issued 12,000,000 shares of common stock pursuant to a conversion of October 2007 convertible notes for $10,428 at a conversion price of $.000869.
On February 16, 2012, we issued 1,600,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $10,428 at a conversion price of $.002923.
On February 17, 2012, we issued 3,000,000 shares of common stock pursuant to two conversions of March, 2011 convertible notes totaling $8,768 at a conversion price of $.002923.
On February 17, 2012, we issued 1,000,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $2,923 at a conversion price of $.002923.
On February 17, 2012, we issued 5,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $10,428 at a conversion price of $.002923.
On February 21, 2012, we issued 13,000,000 shares of common stock pursuant to a conversion of October 2007 convertible notes for $30,576at a conversion price of $.002352.
On February 21, 2012, we issued 12,755,102 shares of common stock pursuant to a conversion of January, 2009 convertible notes for $30,000 at a conversion price of $.002352.
On February 21, 2012, we issued 8,939,822 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $26,131 at a conversion price of $.002923.
On February 21, 2012, we issued 9,600,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $28,061 at a conversion price of $.002923.
On February 21, 2012, we issued 5,460,178 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $9,873 and accrued interest for $6,087 at a conversion price of $.002923.
On February 22, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $9,000 at a conversion price of $.003.
On February 22, 2012, we issued 1,813,317 shares of common stock pursuant to two conversions of March, 2011 convertible notes totaling 5,440 at a conversion price of $.003.
On February 22, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for 1,939 and accrued interest for $7,061 at a conversion price of $.003.
On February 22, 2012, we issued 5,000,000 shares of common stock as a finder’s fee for the February, 2012 financing. This amount represents 10% of the total 50,000,000 warrants that were issued in connection with this financing. We recorded $13,177 in financing fees expense for these shares.
On February 23, 2012, we issued 14,000,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes for $43,400 at a conversion price of $.0031.
On February 24, 2012, we issued 13,797,419 shares of common stock pursuant to a conversion of January, 2009 convertible notes for $22,500 and accrued interest for 20,272 at a conversion price of $.0031.
On February 27, 2012, we issued 13,054,175 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $39,554 at a conversion price of $.00303.
Note 11 – Stockholders’ Deficit (continued):
(c)
Common Stock Issued for the Year Ended March 31, 2012 (continued):
On February 28, 2012, we issued 1,458,139 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $4,418 at a conversion price of $.00303.
On February 28, 2012, we issued 9,000,000 shares of common stock pursuant to a conversion of July 2010 convertible notes for $27,270 at a conversion price of $.00303.
On February 29, 2012, we issued 1,005,600 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $3,017 at a conversion price of $.003.
On March 1, 2012, we issued 5,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $15,700 at a conversion price of $.00314.
On March 1, 2012, we issued 5,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $15,700 at a conversion price of $.00314.
On March 1, 2012, we issued 1,000,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $3,140 at a conversion price of $.00314.
On March 2, 2012, we issued 18,000,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes for $56,106 at a conversion price of $.003117.
On March 2, 2012, we issued 1,500,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $5,070 at a conversion price of $.00338.
On March 2, 2012, we issued 6,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $20,280 at a conversion price of $.00338.
On March 2, 2012, we issued 7,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $23,660 at a conversion price of $.00338.
On March 2, 2012, we issued 20,476,742 shares of common stock pursuant to a conversion of December, 2009 convertible notes for $50,000 and accrued interest for $13,450 at a conversion price of $.0031.
On March 6, 2012, we issued 7,000,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes for $22,176 at a conversion price of $.003168.
On March 6, 2012, we issued 3,419,737 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $11,559 at a conversion price of $.00338.
On March 6, 2012, we issued 1,857,263 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $3,462 and accrued interest for $2,816 at a conversion price of $.00338.
On March 12, 2012, we issued 35,000,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes for $3,125 and $105,970 accrued interest at a conversion price of $.003117.
On March 13, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $9,510 at a conversion price of $.00317.
On March 13, 2012, we issued 706,463 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $2,239 at a conversion price of $.00317.
On March 13, 2012, we issued 7,000,000 shares of common stock pursuant to two conversions of July, 2010 convertible notes totaling $22,190 at a conversion price of $.00317.
Note 11 – Stockholders’ Deficit (continued):
(c)
Common Stock Issued for the Year Ended March 31, 2012 (continued):
On March 16, 2012, we issued 4,856,750 shares of common stock pursuant to two conversions of January. 2011 convertible notes totaling $14,085 at a conversion price of $.0029.
On March 19, 2012, we issued 25,862,069 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $75,000 at a conversion price of $.0029.
On March 21, 2012, we issued 6,500,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $18,850 at a conversion price of $.0029.
On March 21, 2012, we issued 1,652,480 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $4,792 at a conversion price of $.0029.
On March 21, 2012, we issued 7,000,000 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $20,300 at a conversion price of $.0029.
On March 23, 2012, we issued 10,000,000 shares of common stock pursuant to a conversion of February, 2008 convertible notes for $28,850at a conversion price of $.002885.
On March 27, 2012, we issued 2,500,000 shares of common stock pursuant to a conversion of March, 2011 convertible notes for $5,793 at a conversion price of $.002317.
On March 27, 2012, we issued 600,000 shares of common stock pursuant to a conversion of January, 2011 convertible notes for $1,390 at a conversion price of $.002317.
On March 27, 2012, we issued 3,000,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $6,951 at a conversion price of $.002317.
On March 28, 2012, we issued 3,523,979 shares of common stock pursuant to a conversion of June, 2011 convertible notes for $7,823 at a conversion price of $.00222.
On March 29, 2012, we issued 1,400,000 shares of common stock pursuant to a conversion of July, 2010 convertible notes for $1,609 and accrued interest for $1,499 at a conversion price of $.00222.
(d)
Compensation and Incentive Plan:
On October 31, 2007, management approved the Company’s 2007 Stock Compensation and Incentive Plan and reserved 50,000/100 (before and after reverse stock split) shares of the Company’s common stock for future issuance under the Plan to employees, directors and other persons associated with Attitude. These shares were included in a Form S-8 that was filed with the Securities Exchange Commission on May 16, 2008 to register the underlying shares. We have issued 49,877/100 (before and after reverse stock split) shares from this plan leaving an available 124/0 (before and after reverse stock split) shares to be issued in the future.
On August 1, 2008, we issued 17,500/35 (before and after reverse stock split) Non-Qualified Stock Options to Nutraceutical Discoveries at the exercise price of $13.00/$6,500 (before and after reverse stock split) per option for a licensing agreement to use certain intellectual property and “Innutria®” formulation. These options are immediately vested and will expire in five (5) years on July 31, 2013. Due to the immediate vesting, we recognized the full cost of $163,240 in August, 2008 by using the Black-Scholes-Merton (BSM) option-pricing formula. See table below for additional information that was used in this computation.
Although our Board of Directors approved the creation of the March, 2009 Stock Option, Compensation and Incentive Plan in which 1,000,000/2,000 (before and after reverse stock split) shares of our $.001 par value common stock will be reserved for future issuance under this plan, the plan was not filed with the Securities Exchange Commission. As such, any issuance will be subject to restrictions and Rule 144 holding periods. During March 30, 2009, we issued 884,569/1,769 (before and after reverse stock split) non-qualified stock options at the exercise price of $1.00/$500.00 (before and after reverse stock split) to employees and certain consultants. The stock options vest immediately and will expire in five (5) years on March 31, 2014. No other employee stock options have been granted prior to this transaction. We recorded the full compensation cost of $159,348 for these employee stock options in March, 2009. None of these stock options have been exercised.
Note 11 – Stockholders’ Deficit (continued)
(d)
Compensation and Incentive Plan (continued):
On March 10, 2010, our Board of Directors approved the issuance of 50,000/100 (before and after reverse stock split) stock options to our Scientific Advisory Board at an exercise price of $0.60/$300.00 (before and after reverse stock split) that will expire in five (5) years on March 11, 2015. We recorded the full compensation cost of $41,100 for these options in March, 2010. None of these stock options have been exercised. In addition and on the same date, we issued 75,000 stock options as a retainer for future services from our outside legal counsel at an exercise price of $1.00/$500.00 (before and after reverse stock split) in which the
options will expire in five (5) years on March 11, 2015. We recorded the full compensation cost of $57,450 for these options in March, 2010. None of these options have been exercised.
On May 25, 2010, a registration that covers the offering of an aggregated 3,750,000/7,500 (before and after reverse stock split) shares of the Company’s common stock was approved by the Company’s Board of Directors. As such, the 2010 Stock Compensation and Incentive Plan was created for employees, directors, consultants and other persons associated with the Company in which awards of common stock and/or non-qualified stock options may be granted. During the fiscal year ended March 31, 2011, we issued 3,288,889/6,578 (before and after reverse stock split) shares of common stock for a total of $161,000 for past due professional services and payroll in which 1,500,000/3,000 (before and after reverse stock split) shares were returned back to the plan, leaving an available 1,961,111/3,922 (before and after reverse stock split) shares to be issued in the future
On December 21, 2011, the Company’s Board of Directors approved the issuance of 27,102,009/54,204 (before and after reverse stock split) non-qualified stock options to certain employees for the return of previously issued shares of common stock that were issued for payment of past due expenses to be effective at December 31, 2011. The stock options have an exercise price of $.02/$10.00 (before and after reverse stock split), full vesting rights and a life of five years. The Board of Directors intends to approve a registration to cover an offering to include these stock options once the increase in authorized shares has been approved, (increase approved May 1, 2012). We recognized the full compensation expense of $12,656 at December 31, 2011 by using the Black-Scholes valuation model (27,102,009 x $.000467).
As required by the FASB Accounting Standards Codification
,
we would normally estimate forfeitures of employee stock option and recognize the compensation cost over the requisite service period for the entire award in accordance with the provisions. As all stock options were fully vested, no estimate of forfeitures was required, and compensation cost is fully recognized at the time of grant and full vesting. We estimated the fair value of these stock options on the date of grant using a Black-Scholes-Merton (BSM) option-pricing formula, applying the following assumptions (before and after reverse stock split):
|
|
|
Before Reverse
|
|
|
After Reverse
|
|
|
Before Reverse
|
|
|
After Reverse
|
|
|
|
|
Stock Split
|
|
|
Stock Split
|
|
|
Stock Split
|
|
|
Stock Split
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 3/31/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,500 options
|
|
|
35 options
|
|
|
884,569 options
|
|
|
1,769 options
|
|
|
Expected Term (in years)
|
|
|
3.33
|
|
|
|
3.33
|
|
|
|
5
|
|
|
|
5
|
|
|
Risk-free rate
|
|
|
3.23
|
%
|
|
|
3.23
|
%
|
|
|
1.72
|
%
|
|
|
1.72
|
%
|
|
Volatility (based on peer group)
|
|
|
107
|
%
|
|
|
107
|
%
|
|
|
78.02
|
%
|
|
|
78.02
|
%
|
|
Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Year Ended 3/31/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 options
|
|
|
100 options
|
|
|
75,000 options
|
|
|
150 options
|
|
|
Expected Term (in years)
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
Risk-free rate
|
|
|
2.42
|
%
|
|
|
2.42
|
%
|
|
|
2.42
|
%
|
|
|
2.42
|
%
|
|
Volatility (based on peer group)
|
|
|
103
|
%
|
|
|
103
|
%
|
|
|
103
|
%
|
|
|
103
|
%
|
|
Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Year Ended 3/31/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,109,009 options
|
|
|
54,204 options
|
|
|
|
|
|
|
|
|
|
|
Expected Term (in years)
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Risk-free rate
|
|
|
0.83
|
%
|
|
|
0.83
|
%
|
|
|
|
|
|
|
|
|
|
Volatility (based on peer group)
|
|
|
115
|
%
|
|
|
115
|
%
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Note 11 – Stockholders’ Deficit (continued)
(d)
Compensation and Incentive Plan (continued):
Expected Term:
The expected term represents the period over which the share-based awards are expected to be outstanding.
Risk-Free Interest Rate:
We based the risk-free interest rate used in its assumptions on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the stock option award’s expected term.
Expected Volatility:
Due to a limited trading history of our common stock, the volatility factor used in our
assumptions is based on weighted average “peer group” historical stock prices of three different companies that are similar in nature to our company over the most recent period commensurate with the expected term of the stock option award.
Expected Dividend Yield:
We do not intend to pay dividends on our common stock for the foreseeable future. Accordingly, we used a dividend yield of zero in our assumptions.
On January 10, 2013, the stockholders holding a majority voting rights of our Common Stock approved the 2013 Equity Incentive Plan by written consent without a meeting in accordance with Delaware Law. This plan provides for the grant of stock awards to employees, directors and consultants of the Company and its affiliates covering an aggregate of 500,000,000/1,000,000 (before and after reverse stock split) shares of its common stock. The number of shares of common stock available for issuance under this plan shall automatically increase on February 1
st
of each year for a period of 9 years commencing January 1, 2014 in an amount equal to the lesser of 5% of the total number of shares of common stock outstanding on December 31
st
of the preceding calendar year or 15,000,000/30,000 (before and after reverse stock split) shares. No stock awards have been granted as of March 31, 2013.
A summary of option activity under these stock option plans for the year ended March 31, 2013 is presented below:
|
|
|
|
|
|
|
|
|
Before Reverse
|
|
|
After Reverse
|
|
|
Weighed-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Split
|
|
|
Stock Split
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
Before Reverse
|
|
|
After Reverse
|
|
|
Average
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
Stock Split
|
|
|
Stock Split
|
|
|
Exercise
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
Options
|
|
Shares
|
|
|
Shares
|
|
|
Price
|
|
|
Price
|
|
|
(in years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 3/31/10
|
|
|
1,027,068
|
|
|
|
2,054
|
|
|
$
|
1.20
|
|
|
$
|
600.00
|
|
|
|
4.11
|
|
|
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 3/31/11
|
|
|
1,027,068
|
|
|
|
2,054
|
|
|
$
|
1.20
|
|
|
$
|
600.00
|
|
|
|
3.11
|
|
|
|
-
|
|
|
Granted
|
|
|
27,102,009
|
|
|
|
54,204
|
|
|
$
|
0.02
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at 3/31/12
|
|
|
28,129,077
|
|
|
|
56,258
|
|
|
$
|
0.06
|
|
|
$
|
30.00
|
|
|
|
4.66
|
|
|
|
-
|
|
Note that all of the stock options are outstanding, fully vested and exercisable for the year ended March 31, 2013. As such, all compensation expense for the above options has been recognized, and there is no unrecognized compensation expense to be recorded in the future.
Note 12 – Income Taxes:
The Company has recorded no income tax benefit for its taxable losses during the period ending March 31, 2013 because there is no certainty that the Company will realize those benefits. The components of the Company's deferred tax assets and liabilities as of March 31, 2013 and 2012 are as follows:
|
|
|
2013
|
|
|
2012
|
|
|
Net operating loss carryforwards
|
|
$
|
5,744,435
|
|
|
$
|
4,805,496
|
|
|
Compensatory stock and warrants
|
|
|
33,831
|
|
|
|
56,123
|
|
|
Accrued expenses that are deductible in future periods
|
|
|
25,483
|
|
|
|
26,630
|
|
|
Depreciation method differences
|
|
|
1,442
|
|
|
|
1,623
|
|
|
|
|
|
5,805,191
|
|
|
|
4,889,872
|
|
|
Valuation allowances
|
|
|
(5,805,191
|
)
|
|
|
(4,889,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of March 31, 2013 the Company has a net tax operating loss of $16,895,000 that will be available to offset future taxable income, if any. The use of net operating loss carryforwards to reduce future income tax liabilities is subject to limitations, and these amounts will begin to expire in 2028.
The following table illustrates the reconciliation of the tax benefit at the federal statutory rate to the Company's effective rate for the period ending March 31, 2013 and 2012:
|
|
|
2013
|
|
|
2012
|
|
|
Benefit at federal statutory rate
|
|
|
-34.00
|
%
|
|
|
-34.00
|
%
|
|
Benefit at state rate, net of federal deficit
|
|
|
2.37
|
%
|
|
|
2.31
|
%
|
|
Fair value adjustment of convertible debt
|
|
|
30.69
|
%
|
|
|
51.54
|
%
|
|
Non-deductible derivative loss
|
|
|
-3.58
|
%
|
|
|
6.45
|
%
|
|
Loss on extinguishment of debt
|
|
|
29.68
|
%
|
|
|
0.00
|
%
|
|
Non-deductible travel expenses
|
|
|
0.06
|
%
|
|
|
0.07
|
%
|
|
Benefit at the Company's effective rate
|
|
|
-25.22
|
%
|
|
|
-26.37
|
%
|
|
Less valuation allowance effective tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The Company is required to file income tax returns for U.S. Federal and State of Florida purposes. The Company is not currently under any tax examination, but the statute of limitations has not yet expired because no federal or state tax returns have been filed since 2007. Therefore, the Company generally remains subject to examination of its U.S. Federal income tax returns for 2008 and subsequent years by the Internal Revenue Service. In addition, the Company also remains subject to examinations of its State of Florida tax returns for 2008 and subsequent years.
Note 13 – Commitments and Contingencies:
Lease of office
In December 2007, the Company entered into a five year agreement for office space in Palm Beach Gardens, Florida with a commencement date of June 1, 2008. That office lease has ended as we entered into a new office lease for 3,333 square feet at our new office in North Palm Beach, Florida on January 3, 2013 with a lease term of three years with two years as renewable terms. Starting February 1, 2013, the minimum starting monthly base rent without sales tax was $1,602 plus monthly operating expense for $2,670 for a monthly total of $4,272. The lease provides for annual 3% increases throughout its term.
Note 13 – Commitments and Contingencies (continued):
Future minimum rental payments for the new office lease, based on the current adjusted minimum monthly amount of $4,272 and excluding variable common area maintenance charges, as of March 31, 2013, are as follows:
|
Years ending March 31,
|
|
|
Amount
|
|
|
2014
|
|
$
|
51,360
|
|
|
2015
|
|
|
51,940
|
|
|
2016
|
|
|
52,540
|
|
|
2017
|
|
|
53,146
|
|
|
2018
|
|
|
44,730
|
|
|
|
|
$
|
253,716
|
|
Rental expense, which also includes maintenance and parking fees, for the period ended March 31, 2013 was $82,763
Production and Supply Agreements
On December 16, 2008, we signed a manufacturing agreement with O-AT-KA Milk Products Cooperative, Inc. for the production of future new products that are in the development stage. The manufacturer shall manufacture, package and ship such products. All products shall be purchased F.O.B., the facility by the company.
Litigation
On May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the state of Texas to recover the balance owed by us under a Sales Agent Agreement entered by the parties on November 1, 2008. This agreement requires us to pay $5,000 per month and a 5% commission on all net sales. On September 3, 2009, a final judgment by default was approved by the district court in Denton County, Texas for a total sum of $22,348. This claim has been recorded on the Company’s records. Due to the lack of adequate capital financing, we have not been able to make any payments. We expect to resolve this matter as soon as practical.
On June 5, 2009, Tuttle Motor Sports, Inc. commenced a lawsuit in the state of Florida to recover the balance owed by us under a Letter of Agreement to sponsor a Top Fuel Dragster for the 2008 NHRA racing season in the amount of $803,750. Out of this total amount, only $300,000 is required to be paid in cash with the remainder to be paid in shares of common stock. This amount had already been recorded in our records. During May, 2010, Tuttle Motor Sports, Inc. dismissed the lawsuit without prejudice. Prior to that time, the parties went through mediation but were unable to settle. The likelihood of an unfavorable outcome cannot be evaluated as another lawsuit possibly could be filed against the Company.
On August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the state of Alabama to recover past due amounts owed by us under a contract to provide shipping and fulfillment services. The claim is for $2,106 plus interest and legal costs. This amount was already recorded on our records as well as projected interest costs of $682 and estimated court costs of $307 for a total of $3,095. A process of garnishment by the district court in Mobile County, Alabama was approved on September 25, 2009 for the total amount of $3,095. On October 26, 2009, the same court authorized a garnishment process to pay $657 which was done as part payment of the total due amount. Current outstanding balance due is $2,438. No other payments have been made.
On April 20, 2012, Arena Advertising and Sports Marketing Inc commenced a lawsuit in the state of Florida to recover past due amounts owed by us in the amount of $15,000 since January 16, 2012. The $15,000 was already recorded in our records. A Notice of Filing Settlement was filed on August 14, 2012 in the county court of Broward County, Florida whereas a settlement plan was agreed by both parties in which we pay the total sum of $15,390 with $3,390 on September 1, 2012 and $3,000 on the first day of each following month for four months until the total is paid in full. We have paid the entire $15,390 amount as the lawsuit has been dismissed. No further actions are needed by the Company.
Note 13 – Commitments and Contingencies (continued):
On August 30, 2012, Entercom Boston, LLC commenced a lawsuit in the state of Massachusetts to recover past due amounts owed by us in the amount of $12,365 since February, 2011. We have already recorded the $12,365 in our records and paid a total of $9,000 of this balance. Both parties agreed to this $9,000 amount balance as the final settlement. Entercom filed a Notice of Voluntary Dismissal of this Civil Action as there is no further action needed by the Company.
Note 14 – Subsequent Events
These figures are not restated for the reverse stock split except where noted.
On April 1, 2013, we issued a convertible note to SC Advisors, Inc. for $25,000 for their April, 2013 consulting services.
On April 3, 2013, we issued 150,000,000 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $11,250 at a conversion price of $.000075.
Also on April 3, 2013, we issued 583,333,333 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $43,750 at a conversion price of $.000075.
On April 4, 2013, we issued 219,200,000 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $16,440 at a conversion price of $.000075.
On April 9, 2013, we issued 200,000,000 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $15,000 accrued interest at a conversion price of $.000075.
Also on April 9, 2013, we issued 89,546,666 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $6,716 accrued interest at a conversion price of $.000075.
On April 9, 2013, an accredited investor purchased $100,000 of a previously issued $100,000 convertible note payable dated March, 2009 held by another accredited investor. A new replacement note for $100,000 was issued under the same terms of the February, 2013 consolidated notes of 4% interest rate and a maturity date of February 21, 2015. No conversions have occurred.
On April 10, 2013, we issued 219,533,333 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $16,465 at a conversion price of $.000075.
On April 11, 2013, we entered into an allonge number 8 to secured note issued February 22, 2012, now consolidated into a February 21, 2013 convertible note, in the amount of $71,500 less a finder’s fee of $6,500 for net proceeds received in the amount of $65,000.
On April 11, 2013, we issued 160,000,000 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $12,000 at a conversion price of $.000075.
On April 15, 2013, we issued 200,000,000 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $15,000 accrued interest at a conversion price of $.000075.
On April 16, 2013, we issued 636,666,667 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $47,750 at a conversion price of $.000075.
On April 18, 2013, we signed a new Equity Purchase Agreement with an investor for the possible purchase up to Ten Million Dollars of the Company’s common stock. This agreement replaces a similar agreement between the two parties that was signed on August 31, 2012.
On April 22, 2013, we issued 262,333,333 shares of common stock pursuant to two conversions of the February, 2013 consolidated convertible notes payable for $19,675 accrued interest at a conversion price of $.000075.
On April 29, 2013, we issued 250,000,000 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $18,750 accrued interest at a conversion price of $.000075.
Note 14 – Subsequent Events (continued)
On April 30, 2013, we issued 160,000,000 shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $12,000 at a conversion price of $.000075.
On May 1, 2013, we issued a convertible note to SC Advisors, Inc. for $25,000 for their May, 2013 consulting services.
On June 1, 2013, we issued a convertible note to SC Advisors, Inc. for $25,000 for their June, 2013 consulting services.
On June 5, 2013, we entered into an allonge number 9 to a secured note issued February 22, 2012, now consolidated into a February 21, 2013 convertible note, in the amount of $88,000 less a finder’s fee of $8,000 for net proceeds received in the amount of $80,000.
On June 5, 2013, an accredited investor purchased $100,000 of a previously issued $2,496,202 convertible note payable dated February 21, 2013 held by another accredited investor. A new replacement note for $100,000 was issued under the same terms of
the February, 2013 consolidated notes of 4% interest rate and a maturity date of February 21, 2015. No conversions have occurred.
On June 7, 2013, we issued a convertible promissory note to our outside legal counsel in the amount of $37,000. The maturity date for this note is June 7, 2014. The conversion terms are 80% of the average of the closing bid prices for the common stock as reported by Bloomberg, LP for the 5 trading days ending on the trading day immediately before the relevant conversion date.
On June 25, 2013, we filed with the state of Delaware the Company’s Certificate of Amendment of Certificate of Incorporation for the reverse stock split of 500 shares of the issued and outstanding shares of common stock to be combined into one (1) validly issued, fully paid and non-assessable share of common stock of the company. This reverse split will be effective on July 1, 2013.
On June 21, 2013, we entered into an allonge number 10 to secured note issued February 22, 2012, now consolidated into a February 21, 2013 convertible note, in the amount of $88,000 less a finder’s fee of $8,000 for net proceeds received in the amount of $80.000.
Note 14 – Subsequent Events (continued)
On July 1, 2013, we implemented a 1for 500 reverse stock split of our common stock as the table below reflects certain financial information before and after the reverse stock split:
|
TABLE REFLECTING THE EFFECTS OF THE 1-FOR-500 REVERSE STOCK SPLIT
|
|
THAT WAS EFFECTIVE AS OF JULY 1, 2013 FOR THE PERIODS
|
|
ENDED MARCH 31, 2013 AND MARCH 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Before Reverse
|
|
|
With Reverse
|
|
|
|
|
Stock Split
|
|
|
Stock Split
|
|
|
|
|
|
|
|
|
|
|
For the period ended March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding
|
|
|
9,207,273,234
|
|
|
|
18,414,546
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
|
|
|
|
|
|
|
outstanding - basic
|
|
|
2,687,047,797
|
|
|
|
5,374,096
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common sares
|
|
|
|
|
|
|
|
|
|
outstanding - diluted
|
|
|
2,687,047,797
|
|
|
|
5,374,096
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period ended March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and outstanding
|
|
|
854,047,952
|
|
|
|
1,708,096
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(0.03
|
)
|
|
$
|
(13.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
|
$
|
(0.03
|
)
|
|
$
|
(13.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
|
|
|
|
|
|
|
outstanding - basic
|
|
|
225,250,685
|
|
|
|
450,501
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common sares
|
|
|
|
|
|
|
|
|
|
outstanding - diluted
|
|
|
225,250,685
|
|
|
|
450,501
|
|
On July 1, 2013, we issued a convertible note to SC Advisors, Inc. for $25,000 for their July, 2013 consulting services.
On July 1, 2013, we entered into debt amendments with SC Advisors Inc. and Southridge Partners II LP to extend the maturity date all of their outstanding convertible notes ($150,000 and $50,000, respectively) to December 31, 2014. This covers all original convertible notes that are currently outstanding from December, 2012 through July, 2013.
On July 2, 2013, we issued 524,154 (adjusted for the reverse stock split) shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $17,035 at a conversion price of $.0325.
Also on July 2, 2013, we 1,918,462 (adjusted for the reverse stock split) shares of common stock pursuant to a conversion of the February, 2013 consolidated convertible notes payable for $62,350 at a conversion price of $.0325.
F-56