Quarterly report pursuant to Section 13 or 15(d)

Convertible Debentures, As Amended, Disclosure

v3.10.0.1
Convertible Debentures, As Amended, Disclosure
6 Months Ended
Sep. 30, 2018
Notes  
Convertible Debentures, As Amended, Disclosure

NOTE 5 - CONVERTIBLE DEBENTURES AS AMENDED

 

New issuance

On June 5, 2018 the Company entered into a new securities purchase agreement with an accredited investor to place Convertible Debentures (as amended the “Debentures”) in the aggregate principal amount of up to $300,000 net of issuance costs of $35,000 $265,000 (the “Transaction”). The Debentures bear interest at the rate of 5% per annum with a maturity date of June 5, 2019, as may be extended at the option of the note holder.  In addition, the Company must pay to the holder an annual fee equal to 7% of the amount of the Debentures to assist in their monitoring costs for the Debentures. The net proceeds of the financing were used for general corporate matters and for other expenses. The Debentures may be converted at any time on or prior to maturity at the lower of $0.05 or 93% of the average of the three lowest daily volume weighted average price (“VWAP”) during the 10 consecutive trading days immediately preceding the conversion date, provided that as long as we are not in default under the Debenture and the conversion price is never lower than a stated floor price.

 

Amendment

At the same time all previous debentures were amended to align them with the new agreement.  All the Debentures may be converted at any time on or prior to maturity at the lower of $0.05 (rather than $0.10 as previously) or 93% of the average of the three lowest daily volume weighted average price (“VWAP”) during the 10 consecutive trading days immediately preceding the conversion date, provided that as long as we are not in default under the Debenture and the conversion price is never lower than a stated floor price.  The Company accounted for the amendment as a debt modification which resulted in $76,000 impact that was recorded in the change in fair value of embedded derivatives in the Company’s statements of operations.

 

Embedded Derivative

 

Embedded Derivatives - Monthly Payment Provision

The monthly payment provision within the Debentures is a contingent put option that is required to be separately measured at fair value, with subsequent changes in fair value recognized in the Condensed Consolidated Statements of Operations. The Company estimated the fair value of the monthly payment provision, as of the issuance date and September 30, 2018 using probability analysis of the occurrence of a Triggering Date applied to the discounted maximum redemption premium for any given payment.

 

The probability analysis utilized in calculating the embedded derivative at September 30, 2018 and March 31, 2018 was calculated using the following key inputs:

 

Monthly Payment Provision

 

 

September 30, 2018

 

March 31, 2018

Stock price

$0.017

 

$0.06

Probability of Triggering Date

100%

 

100%

Volatility

300%

 

300%

Risk-free rate

1%

 

1%

Discount rate

0%

 

0%

 

Due to the Company’s sequencing policy the Company recorded an embedded derivative associated with the conversion feature.  The following are the inputs associated with the conversion feature.

 

Conversion Feature

 

 

September 30, 2018

 

March 31, 2018

Stock price

$0.017

 

$0.06

Exercise price

$0.016

 

$0.06

Volatility

400%

 

300%

Contractual term

0.14 - 0.68 year

 

1 year

Risk-free rate

1%

 

1%

Discount rate

0%

 

0%

 

The fair value estimate of the embedded derivatives is a Level 3 measurement. The roll-forward of the Level 3 fair value measurement, for the three months ended September 30, 2018, is as follows:

 

Balance at

March 31, 2018

Issuance of

new debentures

 

Change due to

modification

 

Net realized

(gain)/loss

 

Conversion

Balance at

September 30, 2018

$ 736,000

$ 281,000

 

$ 76,000

 

$ (200,000)

 

$ (65,000)

$ 828,000

 

The approximate carrying value of the Debentures, as of September 30, 2018 and March 31, 2018 is comprised of the following:

 

 

September 30, 2018

 

March 31, 2018

  Principal value of 5%, convertible, net of conversion

$

916,000

 

$

750,000

  Fair value of embedded derivatives

 

828,000

 

 

736,000

  Accrued interest

 

34,000

 

 

22,264

  Debt discount

 

(298,000)

 

 

(561,104)

Carrying value of Secured Convertible Debenture Note

$

1,479,690

 

$

947,160

 

As of September 30, 2018, the estimated aggregate fair value of outstanding convertible notes payable is approximately $1.5 million. The fair value estimate is based on the estimated option value of the conversion terms. The estimated fair value represents a Level 3 measurement.

 

Secured Convertible Debenture Conversions

During the six months ended September 30, 2018, holders of approximately $0.16 million in principal amount and accrued interest with respect to Secured Convertible Debentures exercised the conversion option and converted into 7.1 million shares of common stock. The fair market value of the shares issued of $0.12 million was less than the net carrying value of the convertible notes by $0.04 million and a gain on extinguishment was recorded.

 

Events of Default or Financial covenants

The Company is in compliance with all terms associated with the convertible note.