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NOTES AND LOANS PAYABLE
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
NOTES AND LOANS PAYABLE

NOTE 5. NOTES AND LOANS PAYABLE

 

Note Payable

 

The Company financed two field service vehicles in 2008 using notes payables with various terms. These notes are collateralized by the related field service vehicles. The notes expire at various times through March 2012 and have interest rates from 8.8% to 10.1% per annum and are payable in monthly installments of $732 (including principal and interest) and due by March 2012. As of December 31, 2011, the note payable relating to one of the two field service vehicles has been paid. The remaining note payable will mature in 2012. The note is secured by the vehicle acquired.

 

 

  December 31, December 31,
  2011 2010
     
Total vehicle note 2,157 10,234
Less: current portion 2,157 8,077
   Long-term portion: - 2,157

 

 


Convertible Notes Payable

 

On November 21, 2011, we sold a $75,000 convertible promissory note bearing interest at 10% per annum and maturing on December 31, 2016. The note is convertible at any time, contains various default provisions and the conversion price is initially $0.05 per share. After June 30, 2012, the conversion price will at the end of each month adjust to the lower of the current conversion price or 110% of that month’s volume weighted average price as reported by Bloomberg subject to being no lower than $0.005 per shares. Accordingly, a derivative instrument will be established at that time. The purchaser of the Note also received 375,000 warrants to acquire common shares. The warrants expire on December 31, 2017 and have an initial exercise price which is $0.05 per share and can adjust lower in the same manner as the accompanying convertible note, thereby becoming a derivative instrument at that time.

 

These warrants and note were valued at $89,999 using the Black-Scholes pricing model with the following assumptions: expected volatility 327%; expected dividend -0-; expected term 5.12 and 6.12 years; and risk free rate .25%.

 

The Company recorded a deferred debt discount in the amount of $75,000 and finance charge of $14,999. The deferred debt discount was recorded as a reduction of the carrying amount of the convertible debt and an addition to paid-in capital. The finance charges were recognized in the current period. Amortization of the debt discount was $1,602 for the year ended December 31, 2011.

 

Loans Payable- Officer

 

Loans payable to the Company’s CEO bear interest at 5% per annum and are payable on demand. Included in loans payable at December 31, 2011 is accrued interest of $2,690.

 

At December 31, 2010, loans payable of $23,158 included amounts owed to the Company’s CEO of $20,658 and $2,500 to a third party.