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Subsequent Event
6 Months Ended
Jun. 30, 2012
Subsequent Events [Abstract]  
Subsequent Events [Text Block]

15. Subsequent Event

 

As disclosed in Note 7 – Notes Payable, from January 17, 2012 to February 3, 2012, the Company issued a total of $130,000 in contingently convertible notes to certain of its employees and friends and family of its officers and directors (the “Friends and Family Notes”). Of the $130,000 Friends and Family Notes, $50,000 of these notes were issued to relatives of the Company's founders and officers (see Note 8 - Notes Payable - Related Parties). The Friends and Family Notes became due and payable on June 1, 2012, however if certain conditions were met, each of the Friends and Family Notes, could be converted at the holder’s discretion, based on a conversion ratio, to newly issued shares of the Company’s common stock. The note holders notified the Company of their intention to convert in accordance with the term of the notes, however, the notes did not provide for a notice provision for the note holder to exercise the conversion feature and was ambiguous as to the issuer of the shares upon conversion. As such, on July 20, 2012, the Company and each holder of the notes, entered into a First Amendment To Convertible Promissory Notes and all the Friends and Family Notes were converted to common shares of the Company, at the election of each note holder. Pursuant to such conversion, effective July 20, 2012, the Company issued a total of 162,063 common shares, $0.001 par value, (subject to the applicable holding period restrictions under Rule 144).

 

On July 16, 2012, the Company issued an unsecured note payable to a shareholder in the amount of $95,000, due 45 days from the date of the issuance and bearing interest at a rate of 10% per annum, with the principal and interest to be paid on maturity.

 

On July 20, 2012, the Company issued an unsecured note payable to a shareholder in the amount of $25,000, due 45 days from the date of the issuance and bearing interest at a rate of 10% per annum, with the principal and interest to be paid on maturity.

 

On November 15, 2011, the Company issued a promissory note, dated November 15, 2011, in the principal amount of $300,000 in favor of an advisor who is a shareholder, at an interest rate of 3.25% per annum (the “$300,000 Promissory Note”). The $300,000 Promissory Note had a maturity date of May 13, 2012. Pursuant to the $300,000 Promissory Note, the Company made certain customary representations, warranties and covenants. Payment of indebtedness under the $300,000 Promissory Note may be accelerated upon a default in payment or a material default in any of the terms, covenants, agreements, conditions or provisions of the $300,000 Promissory Note, if not cured pursuant to its terms, or in the event of any insolvency or bankruptcy of the Company.

 

On May 7, 2012, the parties extended the maturity date of the $300,000 Promissory Note to August 11, 2012, without changing any other terms.

 

On August 10, 2012, the parties further extended the maturity date of the $300,000 Promissory Note to July 1, 2013, without changing any other terms.

 

On August 7, 2012 (the “Effective Date”), the Company issued a $400,000 Promissory Note (the “$400,000 JMJ Note") to JMJ Financial, ("JMJ", or the “Lender"). The Principal Sum due to the Lender shall be prorated based on the consideration actually funded by the Lender, plus an approximate 10% Original Issue Discount ("OID") that is prorated based on the consideration actually funded by the Lender as well as any other interest or fees, such that the Company is only required to repay the amount funded and the Company is not required to repay any unfunded portion of the $400,000 JMJ Note.

 

The $400,000 JMJ Note has a maturity date of twelve (12) months from the Effective Date of each amount funded. If the $400,000 JMJ Note is repaid within ninety (90) days of the Effective Date, the interest rate shall be zero percent (0%). If the $400,000 JMJ Note remains outstanding after 90 days, a one-time 5% interest rate will be applied. In addition, the Lender has the right, at any time 90 days after the Effective Date, at its election, to convert all or part of the outstanding and unpaid Principal Sum and accrued interest (and any other fees) into shares of fully paid and non-assessable shares of common stock of the Company. The Conversion Price is the lesser of $1.50 or 70% of the lowest trade price in the 25 trading days previous to the conversion.

 

The common shares issuable upon conversion of the $400,000 JMJ Note have “piggyback” registration rights and must be included the next registration statement the Company files with the Securities and Exchange Commission. In the event of default under the $400,000 JMJ Note, default interest will accrue at a rate of 18% and the Company will be assessed a significant default penalty as defined in paragraph 8 of the $400,000 JMJ Note.

 

The initial consideration received on August 8, 2012 was $100,000, and the Company has not received any further consideration to date from the Lender.

 

The issuance of the $400,000 JMJ Note referred to above (and any shares of common stock underlying them) are made in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.