Notes Notes and more notes
Note Payable to CSI
In July 2011, the Company issued a $450,000 note in connection with the CSI Agreement and it stipulated 18 equal monthly installments of $25,000 beginning in August 2011, see Notes 1 and 3 for additional information. During 2011, the Company repaid $50,000, leaving $400,000 outstanding, of which $300,000 was classified as currentas of September 30, 2011.
Convertible Note Payable
In May 2011, the Company issued to a law firm a $210,000 convertible note which is payable on demand of which $43,687 has been repaid leaving a balance of $166,313 as of September 30, 2011. The note is convertible at $0.011. Additionally, the Company issued the law firm 3,000,000, three-year warrants exercisable at $0.011. The note and warrants were issued in satisfaction of accounts payable due to the law firm. The warrants were valued using the Black-Scholes option pricing model with the following assumptions, stock price of $0.0085 (based on the grant date quoted trading price of the Company's common stock), expected terms of three years, volatility of 159% (based on historical volatility), and a risk-free interest rate of 1.84%. The relative fair value of these warrants, approximately $19,000, was fully expensed due to the note being payable on demand. There was no intrinsic value for the embedded conversion feature because the conversion rate of the note equaled the trading price of the Company’s common stock.
Convertible Promissory Note
In February 2011, the Company issued a $150,000, 6 month 12% promissory note due in August 2011. The note is secured with a priority lien on all the Company’s rights, titles, and interest in its assets, together with the proceeds thereof. The Company incurred $4,500 of an original issue discount which was deducted from the loan proceeds and was recorded as a debt discount and was being amortized over the loan term. In addition, the Company paid the lender $10,000 of legal fees which was recorded as a debt discount and was being amortized over the loan term and issued 6,000,000 warrants (with a cashless exercise provision) exercisable at $0.01 per share for a term of 2.5 years. The fair value of the warrants was $55,800, calculated using the Black-Scholes option pricing model with the following assumptions: stock price of $0.01 (based on the grant date quoted trading price of the Company's common stock), expected term of two and one-half years, volatility of 230% (based on historical volatility), and a risk-free interest rate of 1%.The relative fair market value of the warrants was $40,671 which was recorded as debt discount and was being amortized over the term of the note. The Company recorded the aggregate debt discounts of $55,171for this note (which consisted of the loan fee, legal fees and warrant discount) and amortized $39,055 to interest expense through June 2011.
In July 2011, the Company amended this note to add a conversion feature making the note convertible at $0.01 per share.All other terms remained the same.The debt modification was treated as a debt extinguishment under ASC 470-50. Accordingly, the remaining unamortized discount at the time of modification of $16,117 was written-off to loss on extinguishment of debt.There was no beneficial conversion value of the new note as the conversion price was deemed to be equal to the fair value of the common stock.
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OPTIONS MEDIA GROUP HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
In September 2011, as a result of the above mentioned note modification, the note holder converted $50,000 of the promissory note’s principal along with $10,675 of accrued interest into 6,067,561 shares of common stock, leaving $100,000 outstanding principal and $531 of accrued interest as of September 30, 2011.
