Quarterly report pursuant to Section 13 or 15(d)

NOTE 5: DEBT

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NOTE 5: DEBT
9 Months Ended
Sep. 30, 2013
Disclosure Text Block [Abstract]  
Short-term Debt [Text Block]
NOTE 5: DEBT

As of December 31, 2012, the Company had one outstanding note payable with a principal balance of $90,000. The note was unsecured, bore interest at 8% per annum and originally matured on December 1, 2013. On July 30, 2013, this note was modified whereby the interest rate was removed, accrued interest of $5,780 was converted to principal, a one-time fee of 10% ($9,578) was added to the principal, the maturity date was changed to March 1, 2014 and a conversion option was added. Under the terms of the conversion option, the note becomes convertible into common stock on October 8, 2013 at the lower of $0.05 or 75% of the lowest trading price during the 20 days preceding the date of conversion. The Company evaluated this modification under ASC 470-50 and determined that the modification qualified as an extinguishment of debt due to a substantive conversion option being added. A loss on extinguishment of debt of $9,578 was recognized during the nine months ended September 30, 2013. As of September 30, 2013, the outstanding unpaid principal balance under this note was $105,358. Beginning on October 8, 2013, this note will be accounted for as a derivative liability under ASC 815.

On August 21, 2013, the Company borrowed $150,000 under a convertible note. The note is unsecured, matures on August 21, 2014 and becomes convertible into common stock on February 17, 2014 at the lower of $0.05 or 60% of the lowest trading price during the 25 days preceding the date of conversion. If the note is repaid within 3 months from the date of issuance, it bears no interest. If the note is repaid after 3 months from the date of issuance, a one-time interest fee $18,000 will be added to the principal. In connection with the note, the Company accrued fees payable to the lender of $12,000 and incurred an initial issue face discount of $17,500. These amounts aggregating $29,500 were recorded as a discount to the note and are being amortized to interest expense over the life of the notes. During the nine months ended September 30, 2013, aggregate amortization expense of $3,233 was recorded against these discounts. As of September 30, 2013, the outstanding unpaid principal balance under this note was $141,233, net of the unamortized discounts of $26,267. Beginning on February 17, 2014, this note will be accounted for as a derivative liability under ASC 815.

During the nine months ended September 30, 2013, the Company paid loan commitment fees of $157,500 in connection with the negotiation of a loan that had not yet closed as of September 30, 2013. If the loan closes, the fees will be amortized to interest expense over the life of the note, if the loan does not close, the fees will be reimbursed.