NOTE 4 - CONVERTIBLE PROMISSORY NOTE - RELATED PARTY
|9 Months Ended|
Sep. 30, 2011
|Convertible Promissory Note Related Party||
NOTE 4 – CONVERTIBLE PROMISSORY NOTE – RELATED PARTY
On January 28, 2011, the Company issued a 7% $51,000 convertible promissory note to Mr. Mark Meller (“Meller Note”), the Company’s Chief Executive Officer. This note is not collateralized. The note and interest are due January 28, 2012. Any overdue principal or interest, which is not paid within ten (10) days from the due date, shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the lesser of (i) the maximum interest rate permitted by applicable law or (ii) twelve percent (12.00%). The Noteholder is entitled, at its option, to convert, at any time, until payment in full, all or any part of the principal amount of the Meller Note, plus accrued interest, into (i) shares of the Company's Class B common stock, par value $0.0001 per share (“Class B Common Stock”), at the conversion price of one (1) share of Class B Common Stock of the Company for each dollar converted, or, alternatively, (ii) that number of shares of Class A Common Stock that such shares of Class B Common Stock noted in (i) above would convert into. On May 17, 2011, the Board of Directors of the Company and the stockholders holding in the aggregate a majority of the outstanding capital stock of the Company entitled to vote approved by written consent the change in the conversion ratio at which the Class B Common Stock, from fifty percent (50%) of the lowest price ever paid for the issuance of Class A Common Stock to a fixed conversion of one thousand nine hundred seventy five (1,975) shares of Class A Common Stock for each one (1) share of Class B Common Stock (the “Ratio Change”). Therefore, the Meller Note could convert into 100,725,000 Class A Common Stock upon the election of the note holder.
The conversion option embedded in the Meller Note was valued at the date of issuance to be $104,821 (see Note 5) and recorded as a free-standing financial instrument on the date of issuance. The Company recorded additional expense related to the excess of the fair value of the instrument over the carrying value of the Meller Note at the date of issuance in the amount of $53,821 and a debt discount of $51,000. The debt discount is being amortized to interest expense over the life of the note. For the three and nine months ended September 30, 2011 amortization of debt discount was $12,750 and $34,000, respectively. For the three and nine months ended September 30, 2011, the Company recorded interest expense of $912 and $2,430, respectively. Accrued interest at September 30, 2011 was $2,430.