Celts - I appreciate the endorsement. Speaking of CHP, his/her failures as a stock analyst continue with his/her life pursuit of trying to knock good, honest people while making his hot-headed post on the issue of additional convertible notes.
A quick and hot-headed review of the convertible notes sections in the first quarter report will reveal that CHP was correct on the issue of $115K additional convertible notes in Q1. But that is where CHP's "analysis" ended and his bashing began. Indeed, I completely disagree with his/her tone, his/her continuous credibility attacks against Bob, and his/her cigarette analogies (he/she likes cigarettes, as we have seen many references to cigarettes in his posts). He/she provided only the details that served his/her purpose and completely omitted other important sections. In fact, after reviewing all of his/her rants and company praises this morning, I had no idea whether his/her current sentiment was good or bad. Either way, his/her posts were quite the antithesis of a cool-headed analysis.
Per the company's Q&A, Scrips reported that as of December 2, 2014, its convertible note balance was as follows: $1,856,000 in convertible debt, of which $900,000 is in friendly hands (http://scripsamerica.com/q-a/). Per today's 10Q, Scrips reported its total convertible note balances on March 31, 2014 and December 31, 2013 were $869,038 and $1,039,371 respectively . Though the convertible note balance decreased as Scrips made principal payments on some notes and paid off others, and some notes converted to shares, Scrips did add convertible notes totaling $114,750 to the bucket. But it is important to understand the differences between the types of convertible notes at issue here.
Scrips separated its convertible notes into five sections (pasted verbatim below): (1) 12% Fixed rate Convertible notes payable , (2) 12% Fixed rate Convertible notes payable-related party , (3) 8% Variable Convertible notes payable , (4) 10% Variable Convertible notes payable , and (5) 12% Variable Convertible notes payable . It is clear that Scrips considers the "fixed rate" notes as friendly and the "variable notes" as unfriendly. The good news for SCRC shareholders is that last quarter's convertible notes were added to the "friendly bucket" -- the fixed rate notes.
The friendly, fixed rate notes will mature on January 31, 2015 or November 30, 2015; they are convertible at $0.17 per share. If all of the Q1-written notes converted to common stock, approximately 676K shares would be added to the float. Accounting for these new friendly notes and the principal payments on the friendly notes last quarter, the total balance of these notes increased by $65,658 (e.g., $574,778 to $648,398). So it appears that at least on the issue of friendly notes, we took one step forward and two steps back.
I do agree that comparing the "no more notes" PRs this year to today's report that Scrips actually wrote more notes could cause individuals without an understanding of these notes to question the validity of certain PRs. But there is a big difference between writing new friendly notes with a fixed conversion price of $0.17 versus writing more of the unfriendly, toxic convertible notes that have up to 150% prepayment penalties or can convert at prices of up to a 50% discount per share. And we all have painfully learned over the past seven months or more how quickly and aggressive these unfriendly note holders dump their shares. Indeed, there is a reason why this type of financing is called "toxic". To that end, it is important to know whether the company wrote additional toxic convertible notes this year, which is what I believe Bob meant when he said, "no more notes."
For clarity, here is how the company classified the three sets of unfriendly, toxic convertible notes: 8% Variable Convertible notes payable, 10% Variable Convertible notes payable, and 12% Variable Convertible notes payable . On or about December 2, 2013, the total balance of these toxic notes was about $956K, which decreased to about $344K on December 31st. On March 31, 2014, however, this balance decreased to only $108K, about an 89% decrease in since December 2nd . On December 31, 2013, SCRC started with 14 unfriendly notes and it ended with only 3 notes on March 31, 2014. And in today's first quarter report, as to each of the three types of unfriendly notes (i.e., 8% variable, 10% variable, 12% variable), Scrips told its shareholders in the legally-binding document as follows: " No new borrowings occurred. " In other words, Bob Schneiderman kept his word to the extent he meant the company he co-founded would write no new unfriendly notes.
People will accuse me of being too soft on the company or Bob, but just like the private subscription agreements that are much better than dealing with the unscrupulous toxic financiers, I will take the friendly convertible notes over the unfriendly notes 100 times out of 100. In addition, I am certain SCRC required the extra $115K at the time to fund operations and give it the financial legs it needed to confidently make the deal to acquire Main Ave Pharmacy and advance Scrips to profitability. Moreover, I sincerely believe the company was referring to the toxic, unfriendly convertible notes when it said it had stopped writing notes, not the much more friendly notes. Even so, is it not more healthy to quit smoking for a little while to clear the lungs than to not quit smoking at all?
Does anyone who ever talked to Bob seriously question his focus on improving shareholder value? Not me!
Good luck to all the loyal longs!
Bsav88atty (These are just my opinions, for which I was not paid to share here.)
Details from the Q1 10Q below:
12% Fixed rate Convertible notes payable (Friendly)
The Company has obtained loans in various amounts beginning in 2011. These notes currently have terms of no required principal payment until maturity which currently are January 30, 2015 or November 30, 2015. The principal portion of these notes can be converted into common stock at any time during the term of the loan at the rate of $0.17 per share at the option of the lender. These notes provides for interest only payments of 3%, payable quarterly (12% annually), in cash, or in shares of common stock of the Company at $0.17 per share, at the option of the lender.
During three month period ended March 31, 2014 the following activity occurred relating various notes in this category: the Company received $114,750 in cash for several new convertible promissory notes; and the Company made $41,131 in principal payment s . The outstanding balance at March 31, 2014 and December 31, 2013, was $648,398 and $574,77 8, respectively, with the current liability balance of $229,750 and $574,778, respectively. The Company recorded interest expense for the three months ended March 31, 2014 and 2013, of $24,019 and $12,900, respectively.
12% Fixed rate Convertible notes payable-related party (Friendly)
The Company obtained loans in the amount of $80,000 in 2011 from a company owned by ScripsAmerica Company’s Chief Executive Officer. There is no required principal payment on the note until maturity which is January 30, 2015. The principal portion of the note can be converted into common stock at any time during the term of the loan at the rate of $0.17 per share at the option of the lender. These notes provides for interest only payments of 3%, payable quarterly (12% annually), in cash, or in shares of common stock of the Company at $0.17 per share, at the option of the lender.
As of March 31, 2014 and December 31, 2013 the principal balance was $80,000. The Company recorded interest expense for the three month period ended March 31, 2014 and 2013, of $2,400 and $2,400, respectively.
In 2012, the Company received $50,000 in cash for one convertible promissory note payable from a related party. The note provides for interest only payments of 3%, payable quarterly (12% annually), in cash, or in shares of common stock of the Company at $0.17 per share, at the option of the lender. There is no required principal payment on the note until maturity which is January 30, 2015. The principal portion of the note can be converted into common stock at any time during the term of the loan at the rate of $0.17 per share at the option of the lender. The note can be extended by mutual consent of the lender and the Company. Our Contact Packager also co-signed this note.
Additionally, the Company shall pay to the lender a royalty of 0.9% on the first $25 million of sales of a generic prescription drug under distribution contracts with Federal government agencies. Payments for royalty will be paid quarterly. During the three month period ended March 31, 2014, the Company made cash payment of $7,962 in principal and as of March 31, 2014 and December 31, 2013, the principal balance was $32,776 and $40,738, respectively. The Company recorded interest expense for first quarter of 2014 and 2013 of $1,353 and $1,500, respectively. During the three months ended March 31, 2014 the Company, made cash payments for royalty expense in the amount of $21,098, accrued $4,699 in royalty expense and issued 58,427 shares of its common stock for payment of royalty expense, and recorded a royalty expense, of $33,000.
8% Variable Convertible notes payable (Unfriendly)
In fiscal year 2013 the Company entered into six new securities purchase agreements (as of December 31, 2013 only four were still outstanding) with various lenders pursuant to which the lenders purchased an 8% convertible note. The Company received $462,000 in cash for these 8% convertible notes payable with the aggregate principal amount equaling $547,500. Some of these notes included (i) a 10% discount in the aggregate amount of $27,500, and (ii) fees totaling $58,000 paid directly to third parties for legal and finder fees. The maturity dates for these notes range from six months to nineteen months from date of issuance. The conversion price for these notes is equal to a 40% to 65% discount to the lowest closing trading prices or an average of trading prices of the Company’s common stock at the close of trading during a 5 to 10 trading day period prior the date of the notice of conversion. For some of these note, there is a prepayment charge ranging from 125% to 150% of the principal amount and accrued interest thereon if made prepayment is made before a set period of time.
Since these notes have a convertible features with a significant discount and could result in the note principal being converted to a variable number of the Company’s common stock, the instrument includes an embedded derivative. The fair value of the derivative associated with these note was determined by using the Black-Scholes pricing model with the following assumptions: no dividend yield, expected volatility ranges between 161.6% to 200.7%, risk-free interest rate ranges between 0.07% to 0.12% and expected life of 12 to 11 months. The fair value of the derivative at the date issued amounted to $1,329,815 and was revalued at December 31, 2013 to be $606,112. The debt discount associated with these derivatives is being amortized over the life of the notes.
During three month period ended March 31, 2014 the following activity occurred relating to the various notes in this category: No new borrowings occurred. The Company paid the sum of $66,732 to a holder of one of these notes for the principal of $50,000. This cash payment of $66,732 included the accrued interest and a prepayment penalty charge. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $81,792. Two lenders converted $125,000 of principal into 1,890,699 shares of our common stock valued at $368,606. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $68,521. The Company also partially paid down the principal of a loan by making cash payments of $65,182 and issuing 1,015,637 of our common stock valued at $112,107. The Company recognized a loss for this partial extinguishment in the amount of $30,890.
As of March 31, 2014, ( only one note is still outstanding[ /b]) and December 31, 2013 the principal balance was $132,142 and $402,500, respectively, and the unamortized debt discount was $81,300 and $286,166, respectively. The Company recorded interest expense for first quarter of 2014 and 2013 of $61,493 and $13,036, respectively. The Company would have been required to issue 2,312,542 and 6,044,978 of common stock if the lenders converted on March 31, 2014 and December 31, 2013, respectively. The fair value of the derivative liability at March 31, 2014 and December 31, 2013 was $216,654 and $606,112, respectively.
10% Variable Convertible notes payable (Unfriendly)
During fiscal year 2013 the Company entered into twelve new securities purchase agreements (as of December 31, 2013 only seven were still outstanding) with various lenders pursuant to which the lenders purchased a 10% convertible note. The Company received $371,167 in cash for these 10% convertible notes payable with the aggregate principal amount equaling $405,000. Some of these notes included (i) a 10% discount in the aggregate amount of $11,250 and (ii) fees totaling $22,583 paid directly to third parties for legal and finder fees. The maturity dates for these notes range from six months to twelve months from date of issuance. The conversion price for these notes are equal to a 35% to 65% discount to the lowest closing trading prices or an average of trading prices of the Company’s common stock at the close of trading during a 5 to 20 trading day period prior the date of the notice of conversion. For some of these notes there is a prepayment charge ranging from 125% to 150% of the principal amount and accrued interest thereon if made prepayment is made before a set period of time.
Since these notes have a convertible features with a significant discount and could result in the note principal being converted to a variable number of the Company’s common stock, the instrument includes an embedded derivative. The fair value of the derivative associated with this note was determined by using the Black-Scholes pricing model with the following assumptions: no dividend yield, expected volatility ranges between 161.6% to 200.7%, risk-free interest rate ranges between 0.07% to 0.12% and expected life of 12 to 11 months. The fair value of the derivative at the date issued amounted to $631,361 and was revalued at December 31, 2013 to be $383,337. The debt discount associated with this derivative is being amortized over the life of the notes.
During three month period ended March 31, 2014 the following activity occurred relating various notes in this category: No new borrowing occurred . The Company paid the sum of $70,000 to a holder of one of these notes for the principal of $50,000. This cash payment of $70,000 included the accrued interest and prepayment penalty charge. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $98,390. Five lenders converted $178,750 of principal into 3,146,367 shares of our common stock valued at $408,028 the Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $152,151.
As of March 31, 2014 ( only one note is still outstanding ) and December 31, 2013, the principal balance was $51,250 and $280,000, respectively, and the unamortized debt discount was $18,253 and $100,709, respectively. The Company recorded interest expense for first quarter of 2014 and 2013 of $33,077 and $4,788, respectively. The Company would have been required to issue 985,577 and 4,484,138 shares of common stock if the lenders converted on March 31, 2014 and December 31, 2013, respectively. The fair value of the derivative liability at March 31, 2014 and December 31, 2013 was $71,494 and $383,337, respectively.
12% Variable Convertible notes payable (Unfriendly)
During fiscal year 2013 the Company entered into seven new securities purchase agreements (as of December 31, 2013 only three were still outstanding) with various lenders pursuant to which the lenders purchased a 12% convertible note. The Company received $233,200 in cash for these 12% convertible notes payable with the aggregate principal amount of $263,000. Some of these notes included (i) a 10% discount in the aggregate amount of $15,000 and (ii) fees totaling $14,800 paid directly to third parties for legal and finder fees. The maturity dates for these notes range from three months to twelve months from date of issuance. The conversion price for these notes are equal to a range of 42.5% to 60% discount to the lowest closing trading prices or an average of trading prices of the Company’s common stock at the close of trading during a 5 to 20 trading day period prior the date of the notice of conversion. For some of these notes there is a prepayment charge ranging from 125% to 150% of the principal amount and accrued interest thereon if the payment is made before a set period of time. We did not incur any penalty costs during 2013 for conversion of 12% variable notes payable.
Since these notes have a convertible features with a significant discount and could result in the note principal being converted to a variable number of the Company’s common stock, the instrument includes an embedded derivative. The fair value of the derivative associated with this note was determined by using the Black-Scholes pricing model with the following assumptions: no dividend yield, expected volatility ranges used were between 161.6% to 187.9%, risk-free interest rate ranges between 0.07% to 0.12% and expected life of 12 to 11 months. The fair value of the derivative at the date issued amounted to $407,104 and was revalued at December 31, 2013 to be $143,944. The debt discount associated with this derivative is being amortized over the life of the notes.
During three month period ended March 31, 2014 the following activity occurred relating various notes in this category: No new borrowing occurred . The Company paid the sum of $57,089 to a holder of one of these notes for the principal of $40,000. This cash payment of $57,089 included the accrued interest and prepayment penalty charge. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $57,249. A lender converted $25,000 of principal into 569,801 shares of our common stock valued at $68,376. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $19,409.
As of March 31, 2014 ( only one note is still outstanding ) and December 31, 2013, the principal balance of these notes was $24,025 and $89,025, respectively, and the unamortized debt discount was $0 and $40,795, respectively. The Company recorded interest expense for first quarter of 2014 and 2013 of $13,804 and $11,559, respectively. The Company would have been required to issue 500,521 and 1,512,736 of common stock if the lenders converted on March 31, 2014 and December 31, 2013, respectively. The fair value of the derivative liability at March 31, 2014 and December 31, 2013, is $39,182 and $143,944 respectively.
Financing Activities[ /b]
Net cash provided by financing activities was approximately $928,000 for first quarter 2014 compared to approximately $32,000 in first quarter 2013. Financing activities for first quarter 2014 consisted of the following: the Company (a) sold shares of common stock for gross proceeds of $1,278,000, (b) sold convertible notes payables for gross proceeds of $115,000, (c) received $92,000 for a $100,000, 9 month note payable which is being paid daily, (d) paid down the balance on convertible notes in the amount of $314,000, (e) paid down $30,000 on a four year term loan, (f) paid off the year-end balance under our line of credit in the amount of $99,000 and (g) a distribution of equity in our PIMD subsidiary of approximately $114,000. Non-cash transaction include the borrowings by Implex of $250,000 and $50,000 for a term of one year from a stockholder and a related party. respectively, which are included in the condensed consolidated balance sheet as of March 31, 2014. (p. 36)
A quick and hot-headed review of the convertible notes sections in the first quarter report will reveal that CHP was correct on the issue of $115K additional convertible notes in Q1. But that is where CHP's "analysis" ended and his bashing began. Indeed, I completely disagree with his/her tone, his/her continuous credibility attacks against Bob, and his/her cigarette analogies (he/she likes cigarettes, as we have seen many references to cigarettes in his posts). He/she provided only the details that served his/her purpose and completely omitted other important sections. In fact, after reviewing all of his/her rants and company praises this morning, I had no idea whether his/her current sentiment was good or bad. Either way, his/her posts were quite the antithesis of a cool-headed analysis.
Per the company's Q&A, Scrips reported that as of December 2, 2014, its convertible note balance was as follows: $1,856,000 in convertible debt, of which $900,000 is in friendly hands (http://scripsamerica.com/q-a/). Per today's 10Q, Scrips reported its total convertible note balances on March 31, 2014 and December 31, 2013 were $869,038 and $1,039,371 respectively . Though the convertible note balance decreased as Scrips made principal payments on some notes and paid off others, and some notes converted to shares, Scrips did add convertible notes totaling $114,750 to the bucket. But it is important to understand the differences between the types of convertible notes at issue here.
Scrips separated its convertible notes into five sections (pasted verbatim below): (1) 12% Fixed rate Convertible notes payable , (2) 12% Fixed rate Convertible notes payable-related party , (3) 8% Variable Convertible notes payable , (4) 10% Variable Convertible notes payable , and (5) 12% Variable Convertible notes payable . It is clear that Scrips considers the "fixed rate" notes as friendly and the "variable notes" as unfriendly. The good news for SCRC shareholders is that last quarter's convertible notes were added to the "friendly bucket" -- the fixed rate notes.
The friendly, fixed rate notes will mature on January 31, 2015 or November 30, 2015; they are convertible at $0.17 per share. If all of the Q1-written notes converted to common stock, approximately 676K shares would be added to the float. Accounting for these new friendly notes and the principal payments on the friendly notes last quarter, the total balance of these notes increased by $65,658 (e.g., $574,778 to $648,398). So it appears that at least on the issue of friendly notes, we took one step forward and two steps back.
I do agree that comparing the "no more notes" PRs this year to today's report that Scrips actually wrote more notes could cause individuals without an understanding of these notes to question the validity of certain PRs. But there is a big difference between writing new friendly notes with a fixed conversion price of $0.17 versus writing more of the unfriendly, toxic convertible notes that have up to 150% prepayment penalties or can convert at prices of up to a 50% discount per share. And we all have painfully learned over the past seven months or more how quickly and aggressive these unfriendly note holders dump their shares. Indeed, there is a reason why this type of financing is called "toxic". To that end, it is important to know whether the company wrote additional toxic convertible notes this year, which is what I believe Bob meant when he said, "no more notes."
For clarity, here is how the company classified the three sets of unfriendly, toxic convertible notes: 8% Variable Convertible notes payable, 10% Variable Convertible notes payable, and 12% Variable Convertible notes payable . On or about December 2, 2013, the total balance of these toxic notes was about $956K, which decreased to about $344K on December 31st. On March 31, 2014, however, this balance decreased to only $108K, about an 89% decrease in since December 2nd . On December 31, 2013, SCRC started with 14 unfriendly notes and it ended with only 3 notes on March 31, 2014. And in today's first quarter report, as to each of the three types of unfriendly notes (i.e., 8% variable, 10% variable, 12% variable), Scrips told its shareholders in the legally-binding document as follows: " No new borrowings occurred. " In other words, Bob Schneiderman kept his word to the extent he meant the company he co-founded would write no new unfriendly notes.
People will accuse me of being too soft on the company or Bob, but just like the private subscription agreements that are much better than dealing with the unscrupulous toxic financiers, I will take the friendly convertible notes over the unfriendly notes 100 times out of 100. In addition, I am certain SCRC required the extra $115K at the time to fund operations and give it the financial legs it needed to confidently make the deal to acquire Main Ave Pharmacy and advance Scrips to profitability. Moreover, I sincerely believe the company was referring to the toxic, unfriendly convertible notes when it said it had stopped writing notes, not the much more friendly notes. Even so, is it not more healthy to quit smoking for a little while to clear the lungs than to not quit smoking at all?
Does anyone who ever talked to Bob seriously question his focus on improving shareholder value? Not me!
Good luck to all the loyal longs!
Bsav88atty (These are just my opinions, for which I was not paid to share here.)
Details from the Q1 10Q below:
12% Fixed rate Convertible notes payable (Friendly)
The Company has obtained loans in various amounts beginning in 2011. These notes currently have terms of no required principal payment until maturity which currently are January 30, 2015 or November 30, 2015. The principal portion of these notes can be converted into common stock at any time during the term of the loan at the rate of $0.17 per share at the option of the lender. These notes provides for interest only payments of 3%, payable quarterly (12% annually), in cash, or in shares of common stock of the Company at $0.17 per share, at the option of the lender.
During three month period ended March 31, 2014 the following activity occurred relating various notes in this category: the Company received $114,750 in cash for several new convertible promissory notes; and the Company made $41,131 in principal payment s . The outstanding balance at March 31, 2014 and December 31, 2013, was $648,398 and $574,77 8, respectively, with the current liability balance of $229,750 and $574,778, respectively. The Company recorded interest expense for the three months ended March 31, 2014 and 2013, of $24,019 and $12,900, respectively.
12% Fixed rate Convertible notes payable-related party (Friendly)
The Company obtained loans in the amount of $80,000 in 2011 from a company owned by ScripsAmerica Company’s Chief Executive Officer. There is no required principal payment on the note until maturity which is January 30, 2015. The principal portion of the note can be converted into common stock at any time during the term of the loan at the rate of $0.17 per share at the option of the lender. These notes provides for interest only payments of 3%, payable quarterly (12% annually), in cash, or in shares of common stock of the Company at $0.17 per share, at the option of the lender.
As of March 31, 2014 and December 31, 2013 the principal balance was $80,000. The Company recorded interest expense for the three month period ended March 31, 2014 and 2013, of $2,400 and $2,400, respectively.
In 2012, the Company received $50,000 in cash for one convertible promissory note payable from a related party. The note provides for interest only payments of 3%, payable quarterly (12% annually), in cash, or in shares of common stock of the Company at $0.17 per share, at the option of the lender. There is no required principal payment on the note until maturity which is January 30, 2015. The principal portion of the note can be converted into common stock at any time during the term of the loan at the rate of $0.17 per share at the option of the lender. The note can be extended by mutual consent of the lender and the Company. Our Contact Packager also co-signed this note.
Additionally, the Company shall pay to the lender a royalty of 0.9% on the first $25 million of sales of a generic prescription drug under distribution contracts with Federal government agencies. Payments for royalty will be paid quarterly. During the three month period ended March 31, 2014, the Company made cash payment of $7,962 in principal and as of March 31, 2014 and December 31, 2013, the principal balance was $32,776 and $40,738, respectively. The Company recorded interest expense for first quarter of 2014 and 2013 of $1,353 and $1,500, respectively. During the three months ended March 31, 2014 the Company, made cash payments for royalty expense in the amount of $21,098, accrued $4,699 in royalty expense and issued 58,427 shares of its common stock for payment of royalty expense, and recorded a royalty expense, of $33,000.
8% Variable Convertible notes payable (Unfriendly)
In fiscal year 2013 the Company entered into six new securities purchase agreements (as of December 31, 2013 only four were still outstanding) with various lenders pursuant to which the lenders purchased an 8% convertible note. The Company received $462,000 in cash for these 8% convertible notes payable with the aggregate principal amount equaling $547,500. Some of these notes included (i) a 10% discount in the aggregate amount of $27,500, and (ii) fees totaling $58,000 paid directly to third parties for legal and finder fees. The maturity dates for these notes range from six months to nineteen months from date of issuance. The conversion price for these notes is equal to a 40% to 65% discount to the lowest closing trading prices or an average of trading prices of the Company’s common stock at the close of trading during a 5 to 10 trading day period prior the date of the notice of conversion. For some of these note, there is a prepayment charge ranging from 125% to 150% of the principal amount and accrued interest thereon if made prepayment is made before a set period of time.
Since these notes have a convertible features with a significant discount and could result in the note principal being converted to a variable number of the Company’s common stock, the instrument includes an embedded derivative. The fair value of the derivative associated with these note was determined by using the Black-Scholes pricing model with the following assumptions: no dividend yield, expected volatility ranges between 161.6% to 200.7%, risk-free interest rate ranges between 0.07% to 0.12% and expected life of 12 to 11 months. The fair value of the derivative at the date issued amounted to $1,329,815 and was revalued at December 31, 2013 to be $606,112. The debt discount associated with these derivatives is being amortized over the life of the notes.
During three month period ended March 31, 2014 the following activity occurred relating to the various notes in this category: No new borrowings occurred. The Company paid the sum of $66,732 to a holder of one of these notes for the principal of $50,000. This cash payment of $66,732 included the accrued interest and a prepayment penalty charge. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $81,792. Two lenders converted $125,000 of principal into 1,890,699 shares of our common stock valued at $368,606. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $68,521. The Company also partially paid down the principal of a loan by making cash payments of $65,182 and issuing 1,015,637 of our common stock valued at $112,107. The Company recognized a loss for this partial extinguishment in the amount of $30,890.
As of March 31, 2014, ( only one note is still outstanding[ /b]) and December 31, 2013 the principal balance was $132,142 and $402,500, respectively, and the unamortized debt discount was $81,300 and $286,166, respectively. The Company recorded interest expense for first quarter of 2014 and 2013 of $61,493 and $13,036, respectively. The Company would have been required to issue 2,312,542 and 6,044,978 of common stock if the lenders converted on March 31, 2014 and December 31, 2013, respectively. The fair value of the derivative liability at March 31, 2014 and December 31, 2013 was $216,654 and $606,112, respectively.
10% Variable Convertible notes payable (Unfriendly)
During fiscal year 2013 the Company entered into twelve new securities purchase agreements (as of December 31, 2013 only seven were still outstanding) with various lenders pursuant to which the lenders purchased a 10% convertible note. The Company received $371,167 in cash for these 10% convertible notes payable with the aggregate principal amount equaling $405,000. Some of these notes included (i) a 10% discount in the aggregate amount of $11,250 and (ii) fees totaling $22,583 paid directly to third parties for legal and finder fees. The maturity dates for these notes range from six months to twelve months from date of issuance. The conversion price for these notes are equal to a 35% to 65% discount to the lowest closing trading prices or an average of trading prices of the Company’s common stock at the close of trading during a 5 to 20 trading day period prior the date of the notice of conversion. For some of these notes there is a prepayment charge ranging from 125% to 150% of the principal amount and accrued interest thereon if made prepayment is made before a set period of time.
Since these notes have a convertible features with a significant discount and could result in the note principal being converted to a variable number of the Company’s common stock, the instrument includes an embedded derivative. The fair value of the derivative associated with this note was determined by using the Black-Scholes pricing model with the following assumptions: no dividend yield, expected volatility ranges between 161.6% to 200.7%, risk-free interest rate ranges between 0.07% to 0.12% and expected life of 12 to 11 months. The fair value of the derivative at the date issued amounted to $631,361 and was revalued at December 31, 2013 to be $383,337. The debt discount associated with this derivative is being amortized over the life of the notes.
During three month period ended March 31, 2014 the following activity occurred relating various notes in this category: No new borrowing occurred . The Company paid the sum of $70,000 to a holder of one of these notes for the principal of $50,000. This cash payment of $70,000 included the accrued interest and prepayment penalty charge. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $98,390. Five lenders converted $178,750 of principal into 3,146,367 shares of our common stock valued at $408,028 the Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $152,151.
As of March 31, 2014 ( only one note is still outstanding ) and December 31, 2013, the principal balance was $51,250 and $280,000, respectively, and the unamortized debt discount was $18,253 and $100,709, respectively. The Company recorded interest expense for first quarter of 2014 and 2013 of $33,077 and $4,788, respectively. The Company would have been required to issue 985,577 and 4,484,138 shares of common stock if the lenders converted on March 31, 2014 and December 31, 2013, respectively. The fair value of the derivative liability at March 31, 2014 and December 31, 2013 was $71,494 and $383,337, respectively.
12% Variable Convertible notes payable (Unfriendly)
During fiscal year 2013 the Company entered into seven new securities purchase agreements (as of December 31, 2013 only three were still outstanding) with various lenders pursuant to which the lenders purchased a 12% convertible note. The Company received $233,200 in cash for these 12% convertible notes payable with the aggregate principal amount of $263,000. Some of these notes included (i) a 10% discount in the aggregate amount of $15,000 and (ii) fees totaling $14,800 paid directly to third parties for legal and finder fees. The maturity dates for these notes range from three months to twelve months from date of issuance. The conversion price for these notes are equal to a range of 42.5% to 60% discount to the lowest closing trading prices or an average of trading prices of the Company’s common stock at the close of trading during a 5 to 20 trading day period prior the date of the notice of conversion. For some of these notes there is a prepayment charge ranging from 125% to 150% of the principal amount and accrued interest thereon if the payment is made before a set period of time. We did not incur any penalty costs during 2013 for conversion of 12% variable notes payable.
Since these notes have a convertible features with a significant discount and could result in the note principal being converted to a variable number of the Company’s common stock, the instrument includes an embedded derivative. The fair value of the derivative associated with this note was determined by using the Black-Scholes pricing model with the following assumptions: no dividend yield, expected volatility ranges used were between 161.6% to 187.9%, risk-free interest rate ranges between 0.07% to 0.12% and expected life of 12 to 11 months. The fair value of the derivative at the date issued amounted to $407,104 and was revalued at December 31, 2013 to be $143,944. The debt discount associated with this derivative is being amortized over the life of the notes.
During three month period ended March 31, 2014 the following activity occurred relating various notes in this category: No new borrowing occurred . The Company paid the sum of $57,089 to a holder of one of these notes for the principal of $40,000. This cash payment of $57,089 included the accrued interest and prepayment penalty charge. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $57,249. A lender converted $25,000 of principal into 569,801 shares of our common stock valued at $68,376. The Company extinguished the debt and the embedded derivative which resulted in a gain on extinguishment of $19,409.
As of March 31, 2014 ( only one note is still outstanding ) and December 31, 2013, the principal balance of these notes was $24,025 and $89,025, respectively, and the unamortized debt discount was $0 and $40,795, respectively. The Company recorded interest expense for first quarter of 2014 and 2013 of $13,804 and $11,559, respectively. The Company would have been required to issue 500,521 and 1,512,736 of common stock if the lenders converted on March 31, 2014 and December 31, 2013, respectively. The fair value of the derivative liability at March 31, 2014 and December 31, 2013, is $39,182 and $143,944 respectively.
Financing Activities[ /b]
Net cash provided by financing activities was approximately $928,000 for first quarter 2014 compared to approximately $32,000 in first quarter 2013. Financing activities for first quarter 2014 consisted of the following: the Company (a) sold shares of common stock for gross proceeds of $1,278,000, (b) sold convertible notes payables for gross proceeds of $115,000, (c) received $92,000 for a $100,000, 9 month note payable which is being paid daily, (d) paid down the balance on convertible notes in the amount of $314,000, (e) paid down $30,000 on a four year term loan, (f) paid off the year-end balance under our line of credit in the amount of $99,000 and (g) a distribution of equity in our PIMD subsidiary of approximately $114,000. Non-cash transaction include the borrowings by Implex of $250,000 and $50,000 for a term of one year from a stockholder and a related party. respectively, which are included in the condensed consolidated balance sheet as of March 31, 2014. (p. 36)
