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v2.4.0.6
Notes Payable
12 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
Note 6 - Notes Payable

Notes Payable

 

Principal, Attached Warrants and Related Offering Costs. On May 18, 2007 the Company sold two (2) $93,500 each, or $187,000, in aggregate, of 7% secured promissory notes (the “Notes”) maturing four (4) months from the date of issuance along with two (2) warrants to purchase 250,000 shares each, or 500,000 shares in aggregate, of common stock at an exercise price of $0.18 per share , which expired on May 18, 2012, (the “2007 Warrants”) (collectively, the “Securities” or “2007 Notes Offering”) for an aggregate purchase price of $170,000. The Notes were past due as of September 18, 2007 and are secured by all of the rights, title and interest of the Company’s assets. In connection with the sale of the 2007 Notes Offering, the Company issued as broker’s fees: (i) a warrant to purchase 83,111 shares of common stock at an exercise price of $0.18 per share, which expired on May 18, 2012, valued at $9,641 on the date of grant and (ii) a promissory note in the amount of $14,960. In addition, the Company incurred legal fees of $30,512 in connection with the sale of the 2007 Notes Offering. The aggregate costs of $55,813 were carried as deferred financing costs and amortized over the term of the notes payable of four (4) months.

 

Interest Rate. Interest payable on this Note shall accrue at a rate per annum (the "Interest Rate") of seven percent (7%). Interest on the Principal Amount shall accrue from the date of this Note and shall be payable, in arrears, together with Principal Amount payments as described below and on the Maturity Date, whether by acceleration or otherwise.

 

Default Interest. The Company shall have a five (5) business day grace period to pay any monetary amounts due under this Note, after which grace period and during the pendency of an Event of Default (as defined in Article III) a default interest rate of eighteen percent (18%) per annum shall apply to the amounts owed hereunder.

 

Fair Value of Warrants on the Date of Grant. The Company estimated the fair value of the 2007 warrants, estimated on the date of grant, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

Expected life (year)     5  
         
Expected volatility     91.00 %
         
Risk-free interest rate     1.55 %
         
Expected annual rate of quarterly dividends     0.00 %

 

The contractual term of the share options or similar instruments is used as the expected term of the share options or similar instruments for the Company as it has no historical data for the instrument holders’ exercise behavior.  As a thinly-traded public entity it is not practicable for the Company to estimate the expected volatility of its share price, The Company selected four (4) comparable public companies listed on the NYSE Amex and NASDAQ Capital Market within the software industry which the Company used to calculate the expected volatility.  The Company calculated those four (4) comparable companies’ historical volatility over the expected life and averaged them as its expected volatility.  The risk-free interest rate is based on a yield curve of U.S. treasury interest rates on the date of valuation based on the expected term of the share options or similar instruments.  Expected annual rate of quarterly dividends is based on the Company’s dividend history and anticipated dividend policy.

 

The fair value of the 2007 warrants to purchase 500,000 common shares issued to the note holders, estimated on the date of grant, was $43,246, which was originally recorded as a debit to the discount - notes payable and a credit to additional paid-in capital.

 

Allonge No. 1

 

On December 15, 2008, the Allonge No. 1 to one of the Notes was made by and between the Company and the note holder.  Except as amended hereby, the terms of the Note remain as originally stated.

 

The Principal Amount as stated on the face of the Note shall be increased by $21,250 to $114,750. Interest on the increased portion of the Principal Amount shall accrue from the date of this Allonge. The amendment to the Principal Amount due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.

 

Allonge No. 2 (Invalidated)

 

On December 29, 2008, the Allonge No. 2 to one of the Notes was made by and between the Company and the note holder to increase the principal amount by $10,000; however the note holder never transferred the funds to the Company, which invalidated the Allonge No. 2.

 

Allonge No. 3

 

On September 23, 2009, the Allonge No. 3 to one of the Notes was made by and between the Company and the note holder.  Except as amended hereby, the terms of the Note remain as originally stated.

 

The Principal Amount as stated on the face of the Note shall be increased by $10,000 to $124,750. Interest on the increased portion of the Principal Amount shall accrue from the date of this Allonge. The amendment to the Principal Amount due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.

 

Allonge No. 4

 

On May 12, 2010, the Allonge No. 4 to one of the Notes was made by and between the Company and the note holder.  Except as amended hereby, the terms of the Note remain as originally stated.

 

The Principal Amount as stated on the face of the Note shall be increased by $5,000 to $129,750. Interest on the increased portion of the Principal Amount shall accrue from the date of this Allonge. The amendment to the Principal Amount due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.

 

Allonge No. 5

 

On October 5, 2010, the Allonge No. 5 to one of the Notes was made by and between the Company and the note holder.  Except as amended hereby, the terms of the Note remain as originally stated.

 

The Principal Amount as stated on the face of the Note shall be increased by $11,500 to $141,250. Interest on the increased portion of the Principal Amount shall accrue from the date of this Allonge. The amendment to the Principal Amount due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.

 

Allonge No. 6

 

On December 21, 2011, the Allonge No. 6 to one of the Notes was made by and between the Company and the note holder.  Except as amended hereby, the terms of the Note remain as originally stated.

 

The Principal Amount as stated on the face of the Note shall be increased by $30,000 to $171,250. Interest on the increased portion of the Principal Amount shall accrue from the date of this Allonge. The amendment to the Principal Amount due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.

 

The notes are currently in default and the Company is accruing interest at the default rate of 18% per annum.

 

Summary of Notes Payable and Accrued Interest

 

Notes payable and related accrued interest consisted of the following:

 

    June 30, 2012     June 30, 2011  
             
Notes payable     285,494       255,494  
                 
Accrued interest     216,198       167,253