4. CONVERTIBLE NOTES PAYABLE

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

4. CONVERTIBLE NOTES PAYABLE

On April 1, 2013, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $96,463 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on March 31, 2015.  The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.01 per share.

On June 30, 2013, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $167,185 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on June 30, 2015. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.01 per share.

 On September 30, 2013, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $312,310 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on September 30, 2015. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.01 per share.

The Company evaluated the terms of these notes 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 features did not meet the definition of a liability and therefore did not bifurcate the conversion features and account for them as a separate derivative liabilities. The Company evaluated the conversion features 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 recognized beneficial conversion features in the amounts of $96,463, $167,185 and $312,310 on April 1, 2013, June 30, 2013 and September 30, 2013, respectively. The beneficial conversion features were recorded as an increase in additional paid-in capital and a discount to the Convertible Notes Payable. The discounts to the Convertible Notes Payable will be amortized to interest expense over the life of the respective notes.

The holders of the $517,673 Convertible Note Payable elected to convert principal and interest as follows:

Date	Principal Converted		Common stock issued upon conversion
January 14, 2013	$	84,000		2,800,000
February 28, 2013		18,000		600,000
March 11, 2013		57,000		1,900,000
March 18, 2013		36,303		1,210,088
Total	$	195,303		6,510,088

As a result of these conversions, unamortized discount in the total amount of $71,878 was immediately amortized to interest expense. The converted amount of principal and accrued unpaid interest in the total amount of $195,303 was recognized as an increase in stockholders’ equity as a result of these conversions. There was no gain or loss on these conversions, because they were effected in accordance with the terms of the convertible note agreement.

On February 28, 2013, the holder of the 10% Subordinated Convertible Note Payable dated May 23, 2010 elected to convert principal in the amount of $7,632 into 763,184 shares of common stock. There was no gain or loss on the conversion, because it was effected in accordance with the terms of the convertible note agreement.

The holders of the $251,468 Convertible Note Payable elected to convert principal as follows:

Date	Principal Converted		Common stock issued upon conversion
April 30, 2013		80,000		4,000,000
June 14, 2013		40,000		2,000,000
July 12, 2013		36,500		1,825,000
July 15, 2013		73,000		3,650,000
July 22, 2013		36,500		1,825,000
Total	$	266,000		13,300,000

As a result of these conversions, unamortized discount in the total amount of $208,102 was immediately amortized to interest expense. The converted amount of principal and accrued unpaid interest in the total amount of $266,000 was recognized as an increase in stockholders’ equity as a result of these conversions. There was no gain or loss on these conversions, because they were effected in accordance with the terms of the convertible note agreement.