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Debt

12 Months Ended

Apr. 30, 2012

NOTE 7 - CONVERTIBLE DEBENTURES

On or about February 17, 2012, the Company issued $900,000 in five percent (5%) convertible debentures which were due one (1) year after their original issue date and were convertible into 9,000,000 shares of the Company’s common stock at the conversion price of $.10 per share. In connection with the issuance the Company issued common stock purchase warrants convertible into 9.000,000 shares of the Company’s common stock at the exercise price of $.15 per share. The warrants expire one (1) year from their original issue date.

Management recognized a debt discount of $667,571 representing the relative fair value of the detachable warrants, to be amortized over the term of the associated debt. Management determined the fair value of the detachable warrants using a Black-Scholes pricing model with the following inputs:


Stock price	$0.60	$1.15
Exercise price	$0.15	$0.15
Expected life	1 year	1 year
Weighted average volatility	373.9%	376.2%
Risk-free rate	0.18%	0.18%

Management determined the embedded conversion feature in the debentures constituted a beneficial conversion feature, and recognized a debt discount of $87,029. In calculating the accounting conversion rate of the beneficial conversion feature, the intrinsic value exceeded the debt instrument itself. Therefore, the amount of discount assigned to the feature was limited to the proceeds allocated to the convertible instrument.

$145,400 of related-party short term promissory notes (Note 6) were converted into the debentures. The Company has considered the impact of ASC 470-50 “Debt-Modifications and Extinguishments” on the conversion of the related-party short term promissory notes and concluded that it constitutes a substantial modification and therefore should be accounted for as an extinguishment of debt. During the year ended April 30, 2012, the Company recognized a loss on extinguishment of the short term promissory notes of $1,639,575 representing the difference between the fair value of the debt and warrants and the carrying value of the original notes.

As per Note 8, on April 30, 2012, the Company elected to convert all the debentures into common shares pursuant to the terms of the agreement. Therefore, all remaining debt discount was recognized as of that date.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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