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6. Convertible Notes Payable
6 Months Ended
Jan. 31, 2012
Debt Disclosure [Text Block]
6.  Convertible Notes Payable

The Company issued $100,000 in Convertible Notes Payable during October, 2011. These notes accrue interest at 12.0% and are due April 6, and April 12, 2012, respectively.  On February 3, 2012, both parties agreed to a change in the conversion feature.  It was agreed that the notes can only be converted into the Company’s Common Stock on or after the note maturity date. Further, it was agreed that the Company, at its’ discretion, may prepay these notes by paying the outstanding principal plus accrued interest, multiplied by 130%. As a result of this change there was no dilutive effect on the Company’s Common Stock at January 31, 2012.

The Company evaluated the terms of this note in accordance with ASC Topic No. 815 – 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion feature did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes and was deemed to be less than the market value of underlying common stock at the inception of the note.  Therefore, the Company will recognize a beneficial conversion feature in the amount of $12,778. The beneficial conversion feature has been recognized as an increase in additional paid-in capital and charge to interest expense.