Annual report pursuant to Section 13 and 15(d)

Convertible Notes, Convertible Notes - Related Party and Debenture Payable

v3.2.0.727
Convertible Notes, Convertible Notes - Related Party and Debenture Payable
12 Months Ended
Apr. 30, 2015
Convertible Notes, Convertible Notes - Related Party and Debenture Payable [Abstract]  
Convertible Notes, Convertible Notes - Related Party and Debenture Payable

Note 9. Convertible Notes, Convertible Notes – Related Party and Debenture Payable


On February 25, 2012, February 27, 2012 and February 29, 2012, loans payable of $100,000, $50,000 and $50,000, respectively, were converted into two-year convertible promissory notes, bearing interest of 0.19% per annum. Beginning March 31, 2012, the notes were convertible into common shares of the Company at the rate of $1.00 per share. The Company evaluated the convertible notes and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue dates. These loans (now convertible promissory notes) were originally due in February 2014. Two of the above mentioned notes were modified in February 2014, see below, and the third became due in February 2014. The amount due under this note has been reserved for payment upon the note being tendered to the Company by the note holder.


On February 18, 2014 the Company renegotiated the terms of one of the $50,000 convertible notes, specifically the one dated February 27, 2012. The maturity date was extended to December 1, 2014 and the conversion price has been reduced to $0.19 per share. The interest rate has been amended to 3.25% from February 27, 2012. This was treated as a note extinguishment in accordance with ASC 470-50. No gain or loss on extinguishment was recorded and no beneficial conversion feature existed on the modification date. This note was converted to common shares on December 1, 2014. (See Note 11)


On February 28, 2014 the Company renegotiated the terms of the $100,000 convertible note dated February 25, 2012. A payment was made in the amount of $25,000 on February 28, 2014, reducing the principal to $75,000. Another principal payment of $25,000 was made on August 1, 2014 reducing the principal to $50,000. The interest rate was raised to 3.25% from February 25, 2012. The conversion price was reduced to $0.19 per share. This was treated as a note extinguishment in accordance with ASC 470-50. No gain or loss on extinguishment was recorded and no beneficial conversion feature existed on the modification date. The remaining $50,000 balance of this note was converted to common shares on December 1, 2014. (See Note 11)


On March 13, 2012, the Company's CEO loaned the Company $300,000 and received a convertible promissory note due March 31, 2013, bearing interest at 0.19% per annum. The note is convertible into common shares of the Company at the rate of $1.00 per share upon five days written notice to the Company. The Company evaluated the convertible note and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the common shares on the note issue date. On September 4, 2012, the maturity date was extended to August 31, 2013. On July 16, 2014, the maturity of the debt to the CEO has been extended to January 1, 2016 and on March 4, 2015, the debt was extended to July 31, 2016. There was no accounting effect for these modifications.


On August 14, 2012, the Company's CEO loaned the Company $300,000 and received a convertible promissory note, payable on demand, bearing interest at 5% per annum. The note is convertible into shares of common stock of the Company at a rate of $0.35 per share (based on proceeds received on September 28, 2012 under a private placement at $0.35 per unit). The Company evaluated the convertible notes and determined that, for the embedded conversion option, there was no beneficial conversion value to record as the conversion price is considered to be the fair market value of the shares of common stock on the note issue date. On September 4, 2012, the maturity date was extended to August 31, 2013. On December 17, 2012 the maturity date was extended to August 31, 2013. On September 25, 2013, as a term of the convertible Debenture issued as discussed further in this Note, the maturity of the debt to the CEO has been extended to April 5, 2015. On July 16, 2014, the maturity of the debt to the CEO has been extended to January 1, 2016 and on March 4, 2015, the debt was extended to July 31, 2016. There was no accounting effect for these modifications.


On September 26, 2013, the Company and an institutional investor (the "Institutional Investor") signed a Securities Purchase Agreement (the “Agreement”) with respect to a loan of $2,240,000 evidenced by an 18 month original issue discount secured convertible debenture (the "Debenture") with gross proceeds of $2,000,000 prior to fees. Payments on the Debenture were due 25% on November 1, 2014, 25% on January 1, 2015 and the remaining 50% on April 1, 2015 as a final payment. The Company had the option to pay the interest or principal in stock subject to certain “Equity Conditions” such as giving notice of its intent 20 trading days beforehand. The Agreement provided that the Debenture may have been converted at the holder's option at $0.3325 per share at any time after the closing and subject to adjustments. The Company evaluated that for the embedded conversion option, there was no beneficial conversion value to record as the conversion price was greater than the fair market value of the common shares on the note issue date. Warrants with a relative fair value of $389,565 were issued for 100% of the number of shares of common stock that could be purchased at the conversion price at closing or 6,736,842. The warrants have a five-year term and are exercisable for cash if an outstanding registration statement is in effect within 90 days of closing. The $389,565 was recorded as a debt discount to be amortized over the debt term. The Debenture bore 8% per annum interest and was amortizable in installments over its term. The financing closed on September 26, 2013 and the Company received proceeds of approximately $1.7 million, net of certain offering costs and before payment of various debt issue costs. Offering costs to the lender included an original issue discount of $240,000 and cash loan fees of $117,846. At July 31, 2014, the balance of the Debenture payable was $1,911,572, which was the loan of $2,240,000 less $328,428 of unamortized original issue discount. On September 4, 2014, Aspen used part of the equity offering proceeds to fully prepay principal and interest owed under its outstanding debenture held by Institutional Investor. Aspen paid them $2,310,000, after entering into an agreement whereby the Institutional Investor agreed to the prepayment and agreed to limit the future sale of shares of common stock upon exercise of its warrants or otherwise. Of the $2,310,000 payment, $70,000 was for interest. Upon repayment of the debenture, the $70,000 interest payment, along with the balance of the debt discount and the debt issuance costs totaling $452,503, was expensed in the Loss from debt extinguishment line on the Statement of Operations.


In September 2013 Company had entered into an engagement agreement with Laidlaw & Co. ("Laidlaw") to act as placement agent for the offering and receive customary compensation. Laidlaw introduced the Institutional Investor. As a placement agent fee, the Company paid Laidlaw $207,500 and issued 1,347,368 five year warrants with an exercise price of $0.3325, valued at $94,316. The warrants and fees paid plus legal fees of $35,356 were recorded as a debt issue cost asset and were being amortized over the debt term. The discount was expensed to interest expense upon repayment of the debenture.


Notes payable consisted of the following at April 30, 2015 and 2014:


 

 

April 30,

 

 

 

2015

 

 

2014

 

Note payable - related party originating August 14, 2012; no monthly payments required; bearing interest at 5% [A] [D]

 

$

300,000

 

 

$

300,000

 

Note payable - related party originating March 13, 2012; no monthly payments required; bearing interest at 0.19% [A] [D]

 

 

300,000

 

 

 

300,000

 

Note payable - originating February 25, 2012; no monthly payments required [B]

 

 

 

 

 

75,000

 

Note payable - originating February 27, 2012; no monthly payments required [C]

 

 

 

 

 

50,000

 

Note payable - originating February 29, 2012; no monthly payments required; bearing interest at 0.19%; maturing at February 29, 2014

 

 

50,000

 

 

 

50,000

 

Loan Payable - related party originating February 25, 2012; no monthly payments required; bearing interest at 10% [D]

 

 

1,000,000

 

 

 

1,000,000

 

Debentures payable, net of OID

 

 

 

 

 

1,787,229

 

Total

 

 

1,650,000

 

 

 

3,562,229

 

 

 

 

 

 

 

 

 

 

Less: Current maturities (notes payable)

 

 

(50,000

)

 

 

(175,000

)

Less: Current maturities (Debentures Payable)

 

 

 

 

 

(1,787,229

)

Subtotal

 

 

1,600,000

 

 

 

1,600,000

 

Less: amount due after one year for notes payable

 

 

(1,000,000

)

 

 

(1,000,000

)

Amount due after one year for convertible notes payable

 

$

600,000

 

 

$

600,000

 

———————

[A] - Effective September 4, 2012, note amended to provide a maturity date of August 31, 2013. Effective December 17, 2012, note further amended to provide a maturity date of August 31, 2014. On September 25, 2013, maturity date had been extended to April 5, 2015. On July 16, 2014, the maturity date had been extended to January 1, 2016.

[B] - Effective February 28, 2014 a payment was made in the amount of $25,000 , reducing the principal to $75,000, the interest rate was raised to 3.25% from February 25, 2012, and the conversion price was reduced to $0.19 per share. Another principal payment of $25,000 was made on August 1, 2014. On December 1, 2014 the final $50,000 was converted to Common Stock.

[C] - Effective February 18, 2014 the maturity date was extended to December 1, 2014 and the conversion price reduced to $0.19 per share, and the interest rate has been amended to 3.25% from February 27, 2012. This note was converted to common shares on December 1, 2014.

[D] - Effective March 4, 2015, the note was amended to provide a maturity date of July 31, 2016.


Future maturities of notes payable as of April 30, 2015 are as follows:


Year Ending April 30,

 

 

 

2016

 

$

50,000

 

2017

 

 

1,600,000

 

 

 

$

1,650,000