Read the 10K. Page 34
The Company entered into six new securities purchase agreements in 2012 with Asher Enterprises, Inc. (“Asher Enterprises”), pursuant to which the Company issued convertible promissory notes to Asher Enterprises for an original principal amount of $46,000 on February 10, $42,500 on March 20, $53,000 on May 15, $42,500 on June 21, $42,500 on August 10, and $42,500 on November 27 in return for aggregate gross cash proceeds of $269,000. The notes bear interest at a rate of 8% per annum and provide for the payment of all principal and interest 9 months from the date of the note. The principal amount owed to Asher Enterprises at December 31, 2012 is $92,500. The note is convertible at the election of Asher Enterprises into that number of shares of the Company’s common stock. The conversion price equals to the greater of 1) 55% of the average of the lowest three closing bid prices of the Company’s common stock on the OTC Markets during the 10 business days immediately preceding the date of conversion, subject to adjustment and 2) 0.00009. Over the course of the year, Asher elected to convert a total of $357,000 in principal from the notes issued on July 26, 2011 for $40,000, September 1, 2011 for $45,000, November 7, 2011 for $42,500, December 19, 2011 for $53,000, February 10, 2012 for $46,000, March 20, 2012 for $42,500, May 15, 2012 for $53,000 and June 21, 2012 for $35,000. The June 21, 2012 note still had an outstanding principal balance of $7,500 as of December 31, 2012.
The notes issued by Asher Enterprises in 2012 contain a beneficial conversion feature with a minimum conversion price of $0.00009 and no adjustment due to dilutive issuance. As a result, these notes were not bifurcated and valued with an embedded call option. The beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid-in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
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