3. Notes Payable

Senior Secured Note

The terms of the amended $500,000 Senior Secured Note provide for borrowings to bear interest at 8.0 % per annum with accrued interest payable in arrears on each of December 28, 2012, March 31, 2013, June 30, 2013 and October 15, 2013. The amended Note will mature on October 15, 2013, and may be prepaid at any time prior to September 29, 2013. At July 31, 2013 the Company has accrued an additional 100,000 restricted shares of the Company’s common stock with a fair value of $45,000 to SpaGus required under the terms of the amended Note if principal and or accrued interest was outstanding on April 15, 2013. The Company accounted for this amendment as a modification and amendment financing costs will be amortized to interest expense over the life of the amended Note using the effective interest method.

Line of credit payable

The Company has a $100,000 revolving line of credit with a financial institution of which $94,765 was outstanding at July 31, 2013. Borrowings under the line of credit bear interest at the prime rate (as defined) plus 4.50% (7.75% per annum at July 31, 2013),interest only is payable monthly, and matures June 5, 2014. The line of credit is unsecured.

Interest expense associated with the notes payable consisted of the following:

	Three months ended July 31,				Six months ended July 31,
	2013		2012		2013		2012
Interest expense	$	10,675	$	7,513	$	20,091	$	12,631
Amortization of loan fees		27,055		10,310		39,589		22,145
	$	37,730	$	17,823	$	59,680	$	34,776