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Convertible Promissory Notes

6 Months Ended

Jun. 30, 2012

a.	On 25 June 2010, the Company issued the $250,000 Convertible Note to Temasek bearing interest at a rate of twelve percent (12%) per annum on any unpaid principal balance, unsecured, with principal and interest amounts due upon maturity on 25 September 2010 (Note 3).

Temasek has the option to convert any portion of the unpaid principal and/or accrued interest into conversion units (the “Temasek Units”) at any time up to 25 September 2010 at $0.25 per Temasek Unit. Each Temasek Unit consists of one common share of the Company and one share purchase warrant. Each warrant entitles Temasek to purchase an additional common share of the Company at an exercise price of $0.50 per share commencing six (6) months after the date of issuance until one year from the date of issuance.

On 21 September 2011, the Company entered into the Settlement Agreement with Temasek whereby the $250,000 Convertible Note was cancelled (Notes 3 and 13). During the six month period ended 30 June 2012, the Company accrued interest expense of $Nil (30 June 2011 - $92,027), of which $Nil relates to the amortization of debt discount (30 June 2011 - $77,151) (Note 12).

b.	On 25 June 2010, the Company issued the $3,250,000 Convertible Note to Temasek bearing interest at a rate of 12% per annum on any unpaid principal balance, unsecured, with interest amount payable annually and principal amount due upon maturity on 25 June 2013 (Note 3).

Temasek has the option to convert any portion of the unpaid principal and/or accrued interest into Temasek Units at any time up to 25 June 2013 at $0.25 per Temasek Unit. Each Temasek Unit consists of one common share of the Company and one share purchase warrant. Each warrant entitles Temasek to purchase an additional common share of the Company at an exercise price of $0.50 per share commencing 6 months after the date of issuance until one year from the date of issuance.

On 21 September 2011, the Company entered into the Settlement Agreement with Temasek whereby the $3,250,000 Convertible Note was cancelled (Notes 3 and 13). During the six month period ended 30 June 2012, the Company accrued interest expense of $Nil (30 June 2011 - $537,215), of which $Nil relates to the amortization of debt discount (30 June 2011 - $343,817) (Note 12).

On 23 November 2011, the Company issued a convertible note to Asher Enterprises, Inc. (“Asher”) in the amount of $37,500, bearing interest at a rate of eight percent (8%) per annum on any unpaid principal balance, unsecured, with principal and interest amounts due and payable upon maturity on 28 August 2012 (the “Asher Note”). Any amount of principal or interest amount not paid on 28 August 2012 (the “Default Amount”) shall bear interest of twenty-two percent (22%) per annum commencing on 28 August 2012 to the date the amount is paid.

Asher has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time commencing 6 months after the date of issuance up to the later of 28 August 2012 or the date of the Default Amount is paid, at a conversion price equal to fifty-eight percent (58%) of the market price for the common shares during the ten (10) trading days prior to the conversion.

The Asher Note contains a provision limiting the number of shares of common stock into which the Asher Note is convertible to 4.99% of the outstanding shares of the Company’s common stock. However, the provision in the Asher Note may be waived by Asher upon sixty-one (61) days’ prior notice. The Company has a right of prepayment of the Asher Note anytime from the date of the Asher Note until one hundred eighty (180) days thereafter, subject to a prepayment penalty in the amount of 130% to 150% of the outstanding principal and interest of the Asher Note based on the date of prepayment.

The fair value of the beneficial conversion feature was estimated at $27,155 and was recorded as additional paid-in capital. On 4 June 2012, the Company issued 2,000,000 restricted common shares to Asher valued at $2,600 upon conversion of Asher Note, reducing the principal amount to $34,900 (Note 8). During the six month period ended 30 June 2012, the Company accrued interest expense of $20,132 (30 June 2011 - $Nil), of which $18,648 relates to the amortization of debt discount (30 June 2011 - $Nil) (Note 12).

On 16 March 2012, the Company issued a convertible note to Asher in the amount of $37,500, bearing interest at a rate of 8% per annum on any unpaid principal balance, unsecured, with principal and interest amounts due and payable upon maturity on 20 December 2012 (the “Asher Note #2”). Any amount of principal or interest amount not paid on 20 December 2012 (the “Default Amount #2”) shall bear interest of 22% per annum commencing on 20 December 2012 to the date the amount is paid.

Asher has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time commencing 6 months after the date of issuance up to the later of 20 December 2012 or the date of the Default Amount #2 is paid, at a conversion price equal to 58% of the market price for the common shares during the 10 trading days prior to the conversion.

The Asher Note #2 contains a provision limiting the number of shares of common stock into which the Asher Note #2 is convertible to 4.99% of the outstanding shares of the Company’s common stock. However, the provision in the Asher Note #2 may be waived by Asher upon 61 days’ prior notice. The Company has a right of prepayment of the Asher Note #2 anytime from the date of the Asher Note #2 until 180 days thereafter, subject to a prepayment penalty in the amount of 140% to 150% of the outstanding principal and interest of the Asher Note #2 based on the date of prepayment.

The fair value of the beneficial conversion feature was estimated at $27,155 and was recorded as additional paid-in capital. During the six month period ended 30 June 2012, the Company accrued interest expense of $11,257 (30 June 2011 - $Nil), of which $10,377 relates to the amortization of debt discount (30 June 2011 - $Nil) (Note 12).

On 6 June 2012, the Company issued a convertible note to Asher in the amount of $27,500, bearing interest at a rate of 8% per annum on any unpaid principal balance, unsecured, with principal and interest amounts due and payable upon maturity on 6 March 2013 (the “Asher Note #3”). Any amount of principal or interest amount not paid on 6 March 2013 (the “Default Amount #3”) shall bear interest of 22% per annum commencing on 6 March 2013 to the date the amount is paid.

Asher has the option to convert any portion of the unpaid principal balance into the Company’s common shares at any time commencing 6 months after the date of issuance up to the later of 6 March 2013 or the date of the Default Amount #3 is paid, at a conversion price equal to fifty-one percent (51%) of the market price for the common shares during the 10 trading days prior to the conversion.

The Asher Note #3 contains a provision limiting the number of shares of common stock into which the Asher Note #3 is convertible to 4.99% of the outstanding shares of the Company’s common stock. However, the provision in the Asher Note #3 may be waived by Asher upon 61 days’ prior notice. The Company has a right of prepayment of the Asher Note #3 anytime from the date of the Asher Note #3 until 180 days thereafter, subject to a prepayment penalty in the amount of 140% of the outstanding principal and interest of the Asher Note #3 based on the date of prepayment.

The fair value of the beneficial conversion feature was estimated at $26,422 and was recorded as additional paid-in capital. During the six month period ended 30 June 2012, the Company accrued interest expense of $2,467 (30 June 2011 - $Nil), of which $2,323 relates to the amortization of debt discount (30 June 2011 - $Nil) (Note 12).

	30 June 2012		31 December 2011 (Audited)
	$		$

Asher Note		30,954		13,422
Asher Note #2		21,601		-
Asher Note #3		3,546		-

		56,101		13,422