2.4.0.8112 - Disclosure - Notes Payabletruefalsefalse1falsefalsefalseP01_01_2013To06_30_2013http://www.sec.gov/CIK0001476638duration2013-01-01T00:00:002013-06-30T00:00:001true1us-gaap_NotesPayableAbstractus-gaap_truenadurationfalsefalsefalsefalsefalsefalsefalsefalse1falsefalsefalse00falsefalsefalsexbrli:stringItemTypestringfalse02false2rackd_NotesPayableTextBlockrackd_falsenadurationfalsefalsefalsefalsefalsefalsefalsefalseverboseLabel1falsefalsefalse00 <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif "> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <strong>Note 5 – Notes Payable</strong></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <u>5% Note</u></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> In December 2008, the Company issued a $<font style=" FONT-SIZE: 10pt">50,000</font> <font style=" FONT-SIZE: 10pt"> 5</font>% note payable (the “5% Note”). The 5% Note was due in June 2009 and was in default at June 30, 2013 and December 31, 2012. Accrued interest related to the 5% Note was $<font style=" FONT-SIZE: 10pt">11,390</font> (included in Accrued Interest) and $<font style=" FONT-SIZE: 10pt">10,151</font> (included in Accrued Interest – Related Parties) at June 30, 2013 and December 31, 2012, respectively. The holder was no longer a greater than <font style=" FONT-SIZE: 10pt">10</font>% beneficial owner at June 30, 2013.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <u>12% Notes – Amended Terms</u></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> As of June 30, 2013 and December 31, 2012, $<font style=" FONT-SIZE: 10pt"><font style=" FONT-SIZE: 10pt">508,945</font></font> face value of <font style=" FONT-SIZE: 10pt">12</font>% convertible promissory notes (the “Amended 12% Notes”) remained outstanding and were in default. Pursuant to the terms of the Amended 12% Notes, noteholders are entitled to all legal remedies in order to pursue collection and the Company is obligated to bear all reasonable costs of collection. To date, no Amended 12% Note holders have pursued collection.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Accrued interest was $<font style=" FONT-SIZE: 10pt">67,811</font> and $24,688 related to the Amended <font style=" FONT-SIZE: 10pt"> 12</font>% Notes outstanding at June 30, 2013 and December 31, 2012, respectively. Accrued interest – related parties was $<font style=" FONT-SIZE: 10pt">12,837</font>  related to the $<font style=" FONT-SIZE: 10pt">176,972</font> of Amended <font style=" FONT-SIZE: 10pt">12</font>% Notes held by a related party (a director) outstanding at December 31, 2012. The director resigned during the second quarter of 2013. </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <u><font style=" FONT-SIZE: 10pt">8</font>% Notes</u></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On January 21, 2013, note holders elected to convert $800,000 of 8% convertible notes (the “8% Notes) plus $<font style=" FONT-SIZE: 10pt">33,281</font> of accrued and unpaid interest into <font style=" FONT-SIZE: 10pt">28,489</font> shares of common stock and a five-year warrant to purchase <font style=" FONT-SIZE: 10pt">28,489</font> shares of common stock at an exercise price of $<font style=" FONT-SIZE: 10pt">90.00</font> per share (the “Conversion Securities”), pursuant to an offer from the Company. The 8% Notes converted into the Conversion Securities at a price equal to $<font style=" FONT-SIZE: 10pt">29.25</font> (<font style=" ">65% of $45.00</font>) per unit, wherein each unit consisted of one share of common stock and a warrant to purchase one share of common stock. As a result of the note conversion, Bridge Warrants to purchase <font style=" FONT-SIZE: 10pt">2,667</font> shares of common stock had their exercise price adjusted to $<font style=" FONT-SIZE: 10pt">67.50</font> and their term was extended to January 21, 2016. The $<font style=" FONT-SIZE: 10pt">1,311,172</font> aggregate value of the securities issued ($<font style=" FONT-SIZE: 10pt">1,281,927</font> related to the Conversion Securities and $<font style=" FONT-SIZE: 10pt">29,200</font> related to the incremental value of the Bridge Warrants) was credited to equity at conversion. The Company recorded $<font style=" FONT-SIZE: 10pt">531,436</font> of extinguishment loss which represents the incremental value of the securities issued pursuant to the offer as compared to the carrying value of the 8% Notes, accrued interest, plus $<font style=" FONT-SIZE: 10pt">53,545</font> of unamortized debt offering costs.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> There were $<font style=" FONT-SIZE: 10pt">150,000</font> and $<font style=" FONT-SIZE: 10pt">950,000</font> of outstanding <font style=" FONT-SIZE: 10pt"><font style=" FONT-SIZE: 10pt"> 8</font></font>% Notes, plus $<font style=" FONT-SIZE: 10pt">10,156</font> and $<font style=" FONT-SIZE: 10pt">33,832</font> of accrued interest, at June 30, 2013 and December 31, 2012, respectively. See Note 9 – Subsequent Events regarding the conversion of $<font style=" FONT-SIZE: 10pt">100,000</font> of the 8% Notes. The remaining $<font style=" FONT-SIZE: 10pt">50,000</font> of 8% Notes is past due as of the filing date and is ranked senior to the Offering Notes. During the three and six months ended June 30, 2013, the Company recorded amortization of deferred financing costs of $2,518 and $1<font style="COLOR: black">3,960, respectively.</font></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">   </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <u>Short-Term Loans</u></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> On April 12, May 15, and May 30, 2013, the Company borrowed $<font style=" FONT-SIZE: 10pt">112,500</font>, $<font style=" FONT-SIZE: 10pt">200,035</font> and $<font style=" FONT-SIZE: 10pt">150,035</font>, respectively, via short-term interest free loans from a principal shareholder  (the “Short-Term Loans”). On June 11, 2013, the Short-Term Loans were converted into the Units Offering. See below for details.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> <u>Units Offering</u></div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> During the six months ended June 30, 2013, the Company had two closings of a private offering that commenced on June 11, 2013, pursuant to which the Company sold an aggregate of $<font style=" FONT-SIZE: 10pt">2,146,960</font> in units at a price of $<font style=" FONT-SIZE: 10pt">10,000</font> per unit to Navesink RACK, LLC and Black Diamond Financial Group LLC and their affiliates (collectively, the “Purchasers” and the Company’s principal shareholders) (the “Units Offering”). The Company is offering up to $<font style=" FONT-SIZE: 10pt">5,000,000</font> in units. Each unit (an “Offering Unit”) consists of (i) $<font style=" FONT-SIZE: 10pt">10,000</font> principal amount of <font style=" FONT-SIZE: 10pt">12</font>% secured convertible promissory notes (the “Offering Notes”) and (ii) <font style="COLOR: black">a five-year warrant to purchase <font style=" FONT-SIZE: 10pt">267</font> shares of common stock at a price of $<font style=" FONT-SIZE: 10pt">3.00</font> per share at any time after the maturity date of the Offering Notes (the “Offering Warrants”), such that the Purchasers were issued Offering Warrants to purchase an aggregate of <font style=" FONT-SIZE: 10pt">57,253</font> shares of common stock</font>. There was $<font style=" FONT-SIZE: 10pt">2,146,960</font> of Offering Notes, plus $<font style=" FONT-SIZE: 10pt">11,354</font> of accrued interest, outstanding at June 30, 2013.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The closings of the Units Offering resulted in aggregate net proceeds of $<font style=" FONT-SIZE: 10pt">622,000</font> ($<font style=" FONT-SIZE: 10pt">2,146,960</font> of gross proceeds less $<font style=" FONT-SIZE: 10pt">1,146,570</font> of debt conversions less $378,390 of financing costs). Issuance costs of $<font style=" FONT-SIZE: 10pt">378,390</font> were capitalized as deferred financing costs and are being amortized over the term of the Offering Notes. During the three and six months ended June 30, 2013, the Company recorded amortization of deferred financing costs of $<font style=" FONT-SIZE: 10pt"><font style=" FONT-SIZE: 10pt">15,766</font></font>. The closings included the conversion of $<font style=" FONT-SIZE: 10pt">1,146,570</font> of Company debt ($<font style=" FONT-SIZE: 10pt">462,570</font> of Short-Term Loans and $<font style=" FONT-SIZE: 10pt">684,000</font> previously owed to the Company’s factor which was assumed by an affiliate) incurred by the Company or assumed by the Purchasers during the second quarter of 2013. See Note 9 – Subsequent Events for details of closings subsequent to June 30, 2013.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> The Offering Notes mature one year from the date of issuance. Pursuant to an amended agreement, the Purchasers may, individually, on a one-time basis, as the result of making a collective investment in excess of $<font style=" FONT-SIZE: 10pt">1,500,000</font> in the aggregate, at any time during the term of the Offering Notes, convert the Offering Notes, including all accrued interest due thereon, into 1,275,629 shares (collectively  2,551,258 shares) of the Company’s common stock (the “Conversion Shares”) which represents 42.5% each (collectively 85%) of the Company’s issued and outstanding common shares as of August 2, 2013, the date of the Reverse Split. The Company is in the process of increasing the Company’s authorized common stock from 1,000,000 shares to 300,000,000 shares, which has already been approved by the Company’s Board of Directors and a majority of the Company’s common stockholders. By agreement, the Purchasers will each receive <font style=" FONT-SIZE: 10pt"> 50</font>% of the Conversion Shares without regard to their respective subscription amounts. The Purchasers may determine to convert the Offering Notes prior to the completion of the offering. In such event, subscriptions for additional Offering Units otherwise issuable to the Purchasers in connection with subsequent subscriptions will be treated as contributions to capital. In conjunction with such a conversion and the issuance of the Conversion Shares, the Offering Warrants shall be cancelled.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> Pursuant to the terms of the Unit Offering, each Purchaser will either (a) utilize the conversion option (to obtain 1,275,629  shares of the Company’s common stock) or (b) will retain the Offering Warrants; but each Purchaser cannot avail itself of both.  The Company determined that the embedded conversion options were equity instruments and should not be bifurcated and accounted for as a derivative. Accordingly, a debt discount of $<font style=" FONT-SIZE: 10pt">189,961</font> was established (with a credit to additional paid-in capital), which represents the greater of the relative fair value of the Offering Warrants or the beneficial conversion feature attributable to the conversion option. The debt discount is being amortized over the term of the Offering Notes. During the three and six months ended June 30, 2013, the Company recorded amortization of debt discount of $<font style=" FONT-SIZE: 10pt">7,915</font>.</div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif">  </div> <div style="clear:both; FONT-FAMILY:Times New Roman;FONT-SIZE: 10pt;MARGIN: 0pt 0px; FONT: 10pt Times New Roman, Times, Serif"> As collateral security for the Company’s obligations under the Offering Notes and related documents executed in connection with the offering, the Company and Visual Network Design, Inc., a Delaware corporation and the Company’s wholly-owned subsidiary (“VNDI”), granted the Purchasers a security interest in all of the Company’s and VNDI’s assets pursuant to the terms of a security agreement, dated as of June 11, 2013 (the “Security Agreement”). To further secure the Company’s obligations, VNDI executed a guaranty, dated as of June 11, 2013 (the “Guaranty”), pursuant to which VNDI agreed to guaranty the Company’s obligations owed to the Purchasers. The Offering Notes are junior in priority to the Company’s indebtedness to its factor, trade debt and a $<font style=" FONT-SIZE: 10pt">50,000</font> 8% Note.</div> </div> falsefalsefalsenonnum:textBlockItemTypenaNotes Payable (Text Block)No definition available.false0falseNotes PayableUnKnownUnKnownUnKnownUnKnowntruefalsefalseNoteshttp://www.CK0001476638.com/role/NotesPayable12