Note 4. Convertible Notes Payable (continued)
(f) $507,500 convertible notes payable
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. During the year ended March 31, 2010, $15,000 of the principal balance of the notes was converted into common shares at the default conversion price of $.16 calculated pursuant to the notes default provisions. For the quarter ended June 30, 2010, $34,868 of the principal balance was converted into common shares at the conversion price of $.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 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.
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.
===========good luck, michael
Market Data 
Markets 
