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4. Converible Loans Payable
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9 Months Ended |
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Sep. 30, 2012
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| Long-term Debt [Text Block] |
4. Convertible
Loans Payable
In
February 2012, the Company issued an unsecured convertible
note in the principal amount of $45,000 bearing interest at
8% per annum and maturing November 30, 2012. In March 2012,
the Company issued an unsecured convertible note which was
funded in April 2012 in the principal amount of $45,000
bearing interest at 8% per annum and maturing December 26,
2012. In May 2012, the Company issued an unsecured
convertible note in the principal amount of $30,000 bearing
interest at 8% per annum and maturing February 11, 2013. The
notes can be converted after the first 180 days at a price
equal to 58% of the trading price of the Company’s
shares on the OTC Bulletin Board on the conversion
date.
The
February and March notes became convertible during the three
months ended September 30, 2012. On the date they
became convertible, the conversion options were accounted for
as liabilities under ASC 815 (see Note 5). The
fair value of the conversion options exceeded the principal
of the related notes resulting in a full discount of $90,000
for both notes. The discount will be amortized to
interest expense over the remaining term of the
note. During the nine months ended September 30,
2012, the Company amortized $29,486 of the discounts to
interest expense.
The
Company can prepay each of these notes as follows:
First
30 days - 115% of principal plus interest
31-60
days - 120% of principal plus interest
61-90
days - 125% of principal plus interest
91-120
days - 130% of principal plus interest
121-150
days - 135% of principal plus interest
151-180
days - 140% of principal plus interest
There
is no right of prepayment after 180 days.
In
June 2012, the Company issued an unsecured convertible note
in the principal amount of $15,000 bearing interest at 8% per
annum. The principal amount of the note is not
repayable for 360 days after which the principal will remain
payable until repaid in full except for any principal which
is converted. The note can be converted in part or in whole
after 360 days at $0.15 per share. Since the note could not
be converted on September 30, 2012, the conversion option was
not evaluated for liability classification or a beneficial
conversion feature.
Conversion
of Convertible Notes
On
September 7, 2012, the Company issued 1,714,286 shares of
common stock to one investor who elected to convert
the outstanding principal amount of $12,000 due on its
convertible promissory note date February 28, 2012 at a
conversion price of $0.007 per share as provided in the note
agreement.
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