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4. Converible Loans Payable
9 Months Ended
Sep. 30, 2012
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.