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 a total of 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 a total of 9,000,000 shares of the Company’s common stock at the exercise price of $.15 per share. The warrants were scheduled to expire one (1) year from their original issue date; the exercise expiration date was subsequently extended as set forth in Note 12 below.

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 (see Note 5) 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 7, on April 30, 2012, the Company elected to convert all of the outstanding debentures issued on February 17 2012, into common shares pursuant to the terms of the debentures. Therefore, all remaining debt discount was recognized as an expense as of that date.

On June 18, 2012, the Company closed on a private placement of its securities. The placement consisted of issuing two hundred fifty thousand dollars ($250,000) in five percent (5%) convertible debentures. The debentures were due one (1) year from their original issue date and were convertible into a total of 833,333 shares of the Company’s common stock, at the conversion price of $.30 per share, at any time before maturity, solely at the option of the Company. The placement also included the issuance of warrants to the debenture holders, giving the holders thereof the ability to purchase, at the exercise price of $.75 per share, one (1) share of common stock of the Company for each share of Company’s common stock issuable to the holder upon conversion of the debentures issued in conjunction with the warrants. The warrants expire two (2) years from their original issue date.

Management recognized a debt discount of $119,821 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				$0.30
	Exercise price				$0.75
	Expected life				2 years
	Weighted average volatility				275.0%
	Risk-free rate				1.00%

On June 18, 2012, the Company elected to convert all the debentures into common shares pursuant to the terms of the debentures. Therefore, all remaining debt discount was recognized as an expense as of that date.