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v2.4.0.6
CONVERTIBLE PROMISSORY NOTES
9 Months Ended
Sep. 30, 2011
CONVERTIBLE PROMISSORY NOTES [Abstract]  
CONVERTIBLE PROMISSORY NOTES

NOTE 2 - CONVERTIBLE PROMISSORY NOTES

 

Convertible Promissory Notes

----------------------------

 

During 2010, the Company entered into convertible promissory note agreements

with 4 individuals and one third party company for an aggregate amount of

$108,182. These convertible note are unsecured, bear interest at 9.0% per annum

and are payable on demand. The Holders shall have the right, exercisable at any

time from and after the date of issuance of these convertible promissory notes

until the respective note is fully paid, to convert the entire outstanding and

unpaid principal of these notes, in whole or in part, upon delivery of a notice

of conversion into the Company's common stock at the conversion price which

shall be the average of the lowest three trading prices for the Company's common

stock during the 20 trading day period ending one trading day prior to the

conversion date, subject to adjustment from time to time for stock splits, stock

dividends, combinations, capital reorganizations and similar events relating to

the Company's common stock. These arrangements represent a fixed monetary

conversion value of $108,182 based on the variable share quantity to be issued.

 

Convertible Promissory Note and Related Consulting Agreement

------------------------------------------------------------

 

On January 1, 2010, the Company entered into a 24-month consulting agreement

(the "Consulting Agreement") with a Company (the "Consultant") for business

development services. In connection with the consulting agreement, the Company

agreed to pay the Consultant an aggregate of $80,000 which payment is evidenced

by a convertible promissory note (the "Convertible Note") in the amount of

$80,000. The Consulting Agreement terminated on December 31, 2011. The

convertible promissory note is unsecured and was due on the earlier of a) the

date the Company raises $80,000 in a private placement of its common stock or

entry into alternative loan agreements or b) January 1, 2012. This Convertible

Note shall not accrue any interest during the term of this Note, and until 5

business days have passed after the Maturity Date stated above. In the event

that this Convertible Note is not paid in full by the end of the fifth day

following the Maturity Date, the Convertible Note shall bear interest at the

rate of 15% per annum, which interest shall begin accruing after such fifth day

following the Maturity Date, until this Note is paid in full. Interest will be

computed on the basis of a 360-day year.

 

The Convertible Note (and any accrued and unpaid interest) shall be convertible

into shares of the Company's common stock from time to time, at the sole option

of the Payee until such Note is paid in full, upon 5 days written notice from

the Payee to the Company of the Payee's desire to convert the Convertible Note

into shares of common stock at the rate of one share of the Company's common

stock for each $0.001 owed to Payee pursuant to the Convertible Note. In

connection with this Consulting Agreement, the Company recorded a prepaid

expense of $80,000 which was amortized over the contract term. Accordingly, for

the nine months ended September 30, 2011 and 2010, the Company recorded

professional fees of $30,000 and $30,000, respectively. As of the date of this

report this loan was in default.

 

Pursuant to ASC 470-20 and related topics, the Company evaluated whether a

beneficial conversion feature exists by comparing the conversion price of the

Convertible Note with the fair value of the common stock at the commitment date.

In connection with the Convertible Note, the Company recorded a beneficial

conversion since the conversion price was less than the fair market value of the

common stock. The total beneficial conversion feature included in the $80,000

Convertible Note payable resulted in an initial debt discount of $80,000 to be

amortized over the term of the notes with a credit to additional paid-in

capital. For the nine months ended September 30, 2011 and 2010, the Company

recorded interest expense for the amortization of the debt discount of $30,000

and $30,000, respectively.

 

On April 15, 2010, the Company entered into a convertible promissory note

agreement with the above Consultant for $7,310. This convertible note is

unsecured, bears interest at 9.0% per annum and is payable on demand. The Holder

shall has the right, exercisable at any time from and after the date of issuance

of this convertible promissory note until the note is fully paid, to convert the

entire outstanding and unpaid principal of this note, in whole or in part, upon

delivery of a notice of conversion into the Company's common stock at the

conversion price which shall be the average of the lowest three (3) trading

prices for the Company's common stock during the 20 trading day period ending

one trading day prior to the conversion date, subject to adjustment from time to

time for stock splits, stock dividends, combinations, capital reorganizations

and similar events relating to the Company's common stock. This arrangement

represents a fixed monetary conversion value of $7,310 based on the variable

share quantity to be issued.

 

At September 30, 2011 and December 31, 2010, convertible promissory notes

consisted of the following:

 

                                       September   December

                                          30,         31,

                                      ------------------------

                                         2011         2010

                                      ------------  ----------

Convertible notes                     $   195,492   $  195,492

Less:   unamortized   discount  on        (10,000)     (40,000)

convertible note

                                      ------------  ----------

Convertible notes                     $   185,492   $  155,492

                                      ============  ==========