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EXCEL - IDEA: XBRL DOCUMENT - Verity Corp.Financial_Report.xls
10-K - Verity Corp.aqualiv10k.htm
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v2.4.0.6
NOTE 7 - NOTES PAYABLE AND DERIVATIVE LIABILITY
12 Months Ended
Sep. 30, 2012
Debt Disclosure [Abstract]  
NOTE 7 - NOTES PAYABLE AND DERIVATIVE LIABILITY

NOTE 7 - NOTES PAYABLE AND DERIVATIVE LIABILITY

 

At fiscal year ended September 30, 2012, the Company had notes payable in the amount of $344,691, compared to $189,179, in the prior fiscal year. The notes included a note payable to an unaffiliated party in the amount of $93,769, which is not secured by collateral of the company, carries accrued interest of 6%and is due on demand by the holder. The second note payable is to an affiliated company of our President in the amount of $28,456, is not secured by collateral of the company, carries no interest, and is due on demand by the holder.

 

A third note payable was issued to an unaffiliated party on February 27, 2012 in the aggregate amount of $58,000. As of September 30, 2012, $11,000 remained outstanding on the principle amount of the note. The note carries an interest rate of 8%, is not secured by collateral of the company, and has a maturity date of November 29, 2012. The note has conversion rights beginning after month six (6). The variable conversion price is 58% of the market price, which is calculated by the average three (3) lowest closing bid prices as quoted on the applicable trading market (the “OTCBB”) during the previous ten (10) trading days. The note holder may not own any more than 4.99% of the company’s outstanding common stock. The Company recognizes the conversion option of the note (an embedded derivative) as a derivative liability.

 

Derivative Liability

 

ASC Topic 815 (“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

 

The Company issued convertible notes and has evaluated the terms and conditions of the conversion features contained in the notes to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in the notes represent freestanding derivative instruments that meet the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instruments in the notes is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instruments of the convertible notes was measured at the inception date of the notes and warrants and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.

 

The Company valued the conversion features in its convertible notes using the Black-Scholes model. The Black-Scholes model values the embedded derivatives based on a risk-free rate of return ranging from 0.29% to 0.30%, grant dates at 8/1/2011, 10/6/2011 and 9/30/2012, the term of convertible note, conversion prices is 55% and 58% of stock bid price at date of note conversion, current stock prices on the measurement date ranging from $0.0013 to $0.0070, and the computed measure of the Company’s stock volatility, ranging from 1,839.96% to 2,342.87%. 

 

 

Included in the September 30, 2012 financial statements is a derivative liability in the amount of $18,963 to account for this transaction. It is revalued quarterly henceforth and adjusted as a gain or loss to the consolidated statements of operations depending on its value at that time.

 

Included in our Consolidated Statements of Operations for the years ended September 30, 2012 and 2011 are $68,907 in change of fair value of derivative and $131,945 of debt discount amortization in non-cash charges pertaining to the derivative liability as it pertains to the gain on derivative liability and debt discount, respectively.

 

Loss on goodwill impairment   

 

  September 30, 2012 September 30, 2011
     
 Loss on goodwill impairment, AquaLiv  $ -- $ 315,484
  _________  
 Net loss on impairments $ -- $ 315,484