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Notes Payable
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
Note 7. Notes Payable

Convertible Notes Payable. During the three months ended June 30, 2011, the Company issued promissory notes to certain investors resulting in gross proceeds to the Company of $105,000 (the "Notes").  The Notes accrued interest at the rate of 3% annually, and were due and payable on or before November 19, 2011.  On November 19, 2011 these Notes were cancelled and reissued in the original principal amount plus $1,373 of accrued interest, under the terms of the Notes described below.  Concurrently with this debt financing commitment, the lender agreed to surrender and cancel 2,069,000 warrants held by it, and in consideration therefore the Company issued the lender 2,069,000 shares of common stock valued at $62,070.

 

During the three months ended June 30, 2012, the Company issued additional Notes to certain investors resulting in gross proceeds of $95,000.  The Notes are identical to certain Convertible Promissory Notes due and payable on March 31, 2012, on demand, and accrue interest at the rate of 6% annually.  The Notes issued during the quarter ended June 30, 2012 are due and payable or before June 30, 2012, on demand.   Pursuant to the terms of the Notes, the Company issued 50,000 shares of its common stock for each $10,000 loaned to the Company under the terms of the Notes, resulting in the issuance of an additional 475,000 shares of common stock during the quarter ended June 30, 2012.  

 

In May 2012, in consideration for the extension of the Notes due and payable on March 31, 2012 to June 30, 2012, the Company agreed to assign a total of 113,127 FPMI Warrants to the holders of the Notes.  In August 2012, in consideration for the extension of the Maturity Date of the Notes maturing on June 30, 2012 to November 15, 2012, the Company agreed to assign a total of 155,877 FPMI Warrants to the holders of the Notes.  

 

In connection with the issuance of all Notes, the Company has recorded debt discount and expenses of the beneficial conversion feature of $95,685 and $28,998, respectively.  The Company will amortize these expenses over the life of the Notes.  As of December 31, 2011, the Company recorded interest expense related to the debt discount of $21,905 and $3,777 related to the beneficial conversion feature.  During the three and six months ended June 30, 2012, the Company recorded interest expense of $33,626 and $99,485 related to the debt discount and beneficial conversion feature.