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EXCEL - IDEA: XBRL DOCUMENT - VIDAROO CorpFinancial_Report.xls
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10-Q - VIDAROO CORPORATION FORM 10-Q - VIDAROO Corpform10q.htm
v2.4.0.6
DEBT
6 Months Ended
Dec. 31, 2011
DEBT

NOTE 4.  DEBT

 

Convertible Secured Promissory Notes

 

During the year ended June 30, 2009, the Entity issued debt instruments in the form of promissory notes (the “Notes”). The Notes carry interest at 12% and were due and payable in full at the earlier of either minimum equity financing of $1 million or one year. Interest can be received monthly or accrued and paid at maturity at the option of the holder. The Notes are secured by all assets of the Entity.

 

The holders of the Notes have the option, but not the obligation, to convert the outstanding principal into common stock at any time under any of the following terms: A conversion price of $.25 per share; a conversion price of 30% less than price per share obtained in the next round of financing contemplated for $5 million to be completed by the Entity; a conversion price of 30% less than the price per share paid in the event of a sale of the company, or $0.13 per share in the event the Entity does not raise a minimum of $1 million in additional financing.

 

The notes contain warrants to purchase shares valued at 20% of the face value of the note assuming a stock value of $0.25 per share and an exercise price of $0.001 per share. If the value of common stock at the time of conversion is less than $0.25, the payee shall receive additional warrants to bring the total value of warrants issued under this program to be equal to 20% of the face value of the Note. The Notes also included a beneficial conversion feature as the obligations can convert into equity for an exercise price less than the share price at the time of issuance at the option of the holder. Based on these features, the proceeds from debt were split between the value of the warrants and the debt. Further, the debt obligation must have value assigned to the beneficial conversion feature. These valuations cause the proceeds from these notes to be allocated to additional paid capital with $248,953 assigned to the value of the warrants and the remaining $351,047 assigned to the beneficial conversion feature. The face value of the debt was accreted to interest expense over the 1-year initial term of the debt.  

 

During the year ended June 30, 2010, the Entity and the holders of the Notes agreed to extend the terms of repayment for these notes.  The notes were either extended through August 1, 2010, March 31, or June 30, 2011.  Under the terms of the extensions, the holders were provided with additional consideration.  Those Note holders that extended through August were provided with additional shares of Common Stock and those that extended through 2011 received an increase in the interest rate from 12% to 13%.  

 

Effective July 1, 2010, the Entity discontinued paying interest to the holders of its Convertible Secured Promissory Note and Promissory Note holders, due to a shortfall in liquidity.  The Entity is reviewing this issue on an ongoing basis in an effort to resume these payments.  During the three months ended December 31, 2010, the Entity made a partial payment on its interest obligation, but has not made payments since December 31, 2010.

 

As stated above the principal on these notes is past due.  The Notes have neither been repaid nor have they been converted into common stock.  The Entity is currently negotiating with the Holders to convert the obligations into equity of the Entity.     

 

 

Promissory Notes Payable

 

During the years ended June 30, 2011 and 2010, the Entity issued debt instruments in the form of promissory notes with an aggregate face value of $620,500 (the “Promissory Notes”) and bear interest at 12%. These Promissory Notes were issued in two traunches.  Traunch I has a face value of $231,500 and is due and payable one year from issuance.  Traunch I was issued during the fourth quarter of the year ended June 30, 2009, and was originally due during the six months ending June 30, 2010.  Traunch II had an original face value of $638,000 and was originally due and payable on December 31, 2010.  Interest is due monthly.

 

During the year ended June 30, 2010, the Entity and the Note holders agreed to extend the maturity dates on $531,500 of the Notes.  In consideration for the extension of terms the Entity agreed to increase the rate of interest on the Notes to 13%.  Of the $859,500 still outstanding on the Notes, $328,000, $312,000, and 519,500 were due on December 31, 2010, March 31 and June 30, 2011, respectively.

 

As stated above, the principal on these notes is past due.  The Entity is currently negotiating with the Holders to come to resolution.     

 

Notes Payable

 

In connection with the management agreement entered into with MEV, Vidaroo became obligated for the repayment of certain notes payable currently outstanding.  These notes originally consisted of a term loan and a line of credit and were secured by personal guarantees of certain officers of the Entity.  During June, 2010, one of the guarantors exercised his right on these loans and satisfied the obligation to the bank.  This loan is currently a demand obligation to that individual.  There was $40,040 outstanding at December 31, 2011 on this obligation.  A third party added $5,000 to this demand balance during the six months ended December 31, 2010.

 

Fair Value

 

The Notes Payable, Convertible Secured Promissory Notes and Promissory Notes are stated at fair value.  Fair value is as follows:

 

 

 

Face value

 

 

Adjustment to face value

 

 

Fair value as of December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

Promissory Notes and Notes Payable

 

$

903,040

 

 

$

(529,600

)

 

$

373,440

 

Convertible Secured Promissory Notes Payable

 

 

590,000

 

 

 

(347,512

)

 

 

242,488

 

Accrued interest

 

 

344,370

 

 

 

(178,472

)

 

 

165,898

 

Total

 

$

1,837,410

 

 

$

(1,055,584

)

 

$

781,826

 

 

During the six months ended December 31, 2011, the Entity recorded a gain of $660,978.  This gain had the effect of increasing the unrealized gain at June 30, 2011 of $394,607 to the $1,055,584 reported as of December 31, 2011