Convertible Notes Payable

3 Months Ended

Apr. 30, 2013

Convertible Notes [Abstract]

Convertible Notes

4.   Convertible Notes Payable

	April 30,		January 31,
	2013		2013
10% Senior Subordinated Convertible Notes due January 31, 2016, net of debt discount of $166,685 (April 30, 2013) and $183,389  (January 31, 2013)	$	1,083,315	$	1,066,611
9% Senior Subordinated Convertible Notes due February 15, 2016, net of debt discount of $177,486 (April 30, 2013) and $186,897 (January 31, 2013)		802,513		693,103
8% Senior Subordinated Convertible Notes due February 1, 2015		150,000		150,000
Total Convertible Notes		2,035,828		1,909,714
Less: Current Portion		-		-
Long Term Portion	$	2,035,828	$	1,909,714

10% Senior Subordinated Callable Convertible Notes due January 31, 2016

The $1,250,000 10% Senior Subordinated Callable Convertible Notes (the “10% Notes”) bear interest at a rate of 10% annually, payable semi- annually on January 31 and July 31. The 10% Notes rank senior to all other unsecured debt of the Company, have a fixed conversion price of $0.11485 per share, and are convertible at any time prior to maturity, January 31, 2016.

8% Senior Subordinated Convertible Promissory Notes due February 1, 2015  

The $150,000 8% Senior Subordinated Promissory Convertible Notes bear interest at a rate of 8% annually, payable semi -annually on December 31 and June 30. The Notes mature and become due and payable on February 1, 2015 and rank senior to all other subordinated debt of the Company. The 8% Notes are convertible any time prior to February 1, 2015 at an initial conversion price of $0.25 per share of the Company’s common stock. The Company may require the holders of the 8% Notes to convert to common stock at the then applicable conversion rate at any time after June 30, 2013 if: i) our 10% Notes have been fully repaid or converted and ii) the closing price of our common stock has exceeded 150% of the then applicable Conversion Price for no less than 30 consecutive trading days prior to giving notice. At any time on or after June 30, 2014, the Company may, at its sole option, redeem all of the Notes at a redemption price in cash equal to 108% of the principal amount of the Notes to be redeemed plus any accrued and unpaid interest up to, but excluding, the redemption rate.

9% Senior Subordinated Callable Convertible Promissory Notes due February 15, 2016

The 9% Notes bear interest at a rate of 9% per annum, payable semi-annually on August 15 and February 15. The principal of the 9% Notes plus any accrued yet unpaid interest is convertible at any time by the holder at a conversion price of $0.40 per share of Common Stock, subject to adjustment for stock splits, stock dividends and reverse stock splits. After 60 days prior notice, the Note is callable in full or in part by the Company at any time after January 31, 2015. If the Average Daily Value of Trades (“ADVT”) during the prior 90 days as reported by Bloomberg is greater than $100,000, the Note is callable at a price of 105% of the Note’s par value, and if the ADVT is less than $100,000, the Note is callable at a price of 110% of the Note’s par value.

During the three months ended April 30, 2013 the Company issued additional units of the 9% Notes for aggregate proceeds of $100,000, and warrants to purchase the Company’s common stock aggregating 75,000 shares at an exercise price of $0.40 per share. 

The fair value of the warrants of $6,724 was based on the Company’s closing stock price at the transaction date and inputs to the Black-Scholes option pricing model as follows: 

Exercise Price	$	0.40
Expected Term (in years)		5.0
Volatility		36.7	%
Dividend rate		0.0	%
Interest rate		0.7	%

This amount was recorded as additional debt discount which will be amortized to interest expense using the effective interest method over the term of the 9% Notes.