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SUBSEQUENT EVENTS
9 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]  
SUBSEQUENT EVENTS

Note 12: SUBSEQUENT EVENTS

 

On October 15, 2012, the Company entered into an agreement to issue a note to an investor for $340,000. The Company received $300,000 for the note which carried $30,000 of original issue discount and $10,000 in legal fees. The note is due on October 15, 2013 and carries an interest rate of 8%. There are seven installment payments due on the note beginning on the seventh month after its issuance of the note and each month thereafter until maturity.

 

The lender has the right, at any time after issuance, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest into fully paid and non-assessable shares of the Company’s common stock at $0.12 per share. If the Company issues shares (or reduces the conversion or exercise price for outstanding debt or warrants) for less than $0.12, then the conversion price for the note shall be reduced to that new issuance price. If the holder of the note converts the full amount of the note (excluding any interest that becomes due thereon), it shall receive 2,833,333 shares of the Company’s common stock.

 

Provided that there is sufficient volume in the trading of the Company’s common stock and other criteria are met, the Company may elect to make any payment due on an installment date in shares of common stock. If the Company elects to make a payment in shares of common stock, the number of shares that the Company issues will be equal to the amount to be converted divided by the lesser of the conversion price or 70% of the average of the three lowest closing bid prices of the shares of common stock during the prior twenty consecutive trading days. If the Company elects to pay the full amount of the note in common shares (excluding any interest that becomes due thereon), the holder shall receive at a minimum 2,833,333 shares of the Company’s common stock, but this amount could be substantially higher. Unless otherwise agreed in writing by both parties, at no time will the holder convert any amount of the debenture into common stock that would result in the holder owning more than 4.99% of the common stock outstanding.

 

As part of the agreement, the Company also issued 3,000,000 warrants to the note holder exercisable at $0.25/share expiring on October 31, 2016.

 

The warrants include price adjustment provisions whereby the exercise price will be adjusted downwards based on future grants, which results in a share issuance at a per share amount less than $0.25 per share, or repricing of any existing warrants to a lower price.