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Convertible Notes Payable
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6 Months Ended |
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Jun. 30, 2011
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| Convertible Notes Payable [Abstract] | |
| Convertible Notes Payable [Text Block] |
4. CONVERTIBLE NOTES PAYABLE
Convertible notes payable bear interest of 6% annually which is payable upon maturity on September, 25 2011. The notes have a conversion price of $.0025.
During June, 2010, $5,000 of these notes was converted to 40,000 common shares.
During July, 2010, $10,000 of these notes was converted to 80,000 common shares.
During January, 2011. $4,000 of these notes was converted to 32,000 common shares.
During March, 2011, $50,000 of these notes together with $4,441 of accrued interest were converted to 21,776,544 common shares
On March 18, 2011, the Company issued 21,776,544 common shares pursuant to the conversion of $50,000 in notes payable together with $4,441of accrued interest. This conversion was negotiated to mitigate the effect of the 1:50 Reverse-Split on the note conversion price which Management determined could have significantly dilutive effects. The conversion of the remaining $27,000 of convertible notes, together with interest thereon, is subject to further negotiation with the holders, however, all remaining note holders have agreed that the original conversion rate of $.0025 will remain fixed regardless of the Reverse-Split. Accordingly, if the balance of the notes were converted on a similar fixed basis, the Company would issue approximately 12,400,000 additional common shares.
During the 2nd quarter of 2011 $4,000 of these notes were converted to 1,600,000 common shares.
Derivative analysis
Upon their origination these notes were determined to have had full reset adjustments based upon the issuance of equity securities by the Company in the future, This feature subjected the notes to derivative liability treatment under Section 815-40-15 of the FASB Accounting Standard Codification (“Section 815-40-15”) (formerly FASB Emerging Issues Task Force (“EITF”) 07-5). The notes have been measured at fair value using a lattice model at each reporting periods with gains and losses from the change in fair value of derivative liabilities recognized on the consolidated statement of operations. The convertible notes gave rise to a derivative liability which was recorded as a discount to the notes upon origination.
The agreements between the Company and the note holders to fix the conversion rate stated in the convertible notes effectively removed the embedded derivative from the convertible notes as future conversions are no longer subject to reset. Accordingly the derivative liability related to the notes was adjusted to $0 and the Company recognized a gain on the change in value of the derivative liability of $2,701,894 .
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