Convertible Debentures, As Amended, Disclosure
|6 Months Ended|
Sep. 30, 2018
|Convertible Debentures, As Amended, Disclosure||
NOTE 5 - CONVERTIBLE DEBENTURES AS AMENDED
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.
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 Companys statements of operations.
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
Due to the Companys sequencing policy the Company recorded an embedded derivative associated with the conversion feature. The following are the inputs associated with the conversion feature.
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:
The approximate carrying value of the Debentures, as of September 30, 2018 and March 31, 2018 is comprised of the following:
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.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef