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v2.3.0.11
LOAN TRANSACTION
6 Months Ended
Jun. 30, 2011
Debt Disclosure [Text Block]

NOTE 11 - LOAN TRANSACTION


Convertible Note


A summary of convertible debentures payable at June 30, 2011 and December 31, 2010 is as follows:


 

 

 

 

 

 

 

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 


 


 

Senior Convertible Debentures, accrue interest at 11% per annum and mature on December 31, 2011

 

$

250,000

 

 

 

Debt Discount - beneficial conversion feature, net of accumulated amortization of $4,363 and $0 at June 30, 2011 and December 31, 2010, respectively.

 

 

(100,347

)

 

 

Debt Discount - value attributable to warrants attached to notes, net of accumulated amortization of $4,363 and $0 at June 30, 2011 and December 31, 2010, respectively.

 

 

(100,347

)

 

 

 

 



 



 

 

 

 

 

 

 

 

 

Total Current Portion

 

$

49,306

 

 

 

 

 



 



 


On June 24, 2011 the Company issued $250,000 in Convertible Promissory Notes that matures December 31, 2011. The Promissory Notes bear interest at a rate of 11% and will be convertible into 50,000 shares of the Company’s common stock, at a conversion rate of $5.00 per share. Interest can also be converted into common stock at the conversion rate of $5.00 per share. In connection with the issuance of the Convertible Promissory Notes, the Company issued 62,500 warrants to purchase the Company’s common stock at $5.00 per share over 2 years.


In accordance ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $104,710 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is amortized over the note’s maturity period (192 days) as interest expense.


In connection with the issuance of the promissory notes, the Company issued detachable warrants granting the holder the right to acquire an aggregate of 62,500 shares of the Company’s common stock at $5.00 per share. The warrants expire two years from the issuance. In accordance with ASC 470-20, the Company recognized the value attributable to the warrants in the amount of $104,710 to additional paid in capital and a discount against the note. The Company valued the warrants in accordance with ASC 470-20 using the Black-Scholes pricing model and the following assumptions: contractual terms of 2 years, an average risk free interest rate of 4.95%, a dividend yield of 0%, and volatility of 108%. The debt discount attributed to the value of the warrants issued is amortized over the note’s maturity period (192 days) as interest expense.


The Company amortized debt discount of $8,726 to current period operations as interest expense for the three and six months ended June 30, 2011.