6. CONVERTIBLE NOTE PAYABLE AND DERIVATIVE LIABILITY	9 Months Ended
Mar. 31, 2013
Notes to Financial Statements
6. CONVERTIBLE NOTE PAYABLE AND DERIVATIVE LIABILITY	*Convertible Note Payable* Convertible Note #1 On August 8, 2012, the Company entered into a securities purchase agreement and convertible note agreement, for $47,500 in cash. The note has a maturity date of May 10, 2013, and carries an interest rate of 8%, per annum. Principal and interest is due on May 10, 2013 and any amount of principal or interest not paid by this date, will accrue interest at 22% per annum. This note, plus accrued interest, is convertible 180 days from the date of the Note, at a variable conversion price of 55% of the lowest three trading prices for the common stock of the Company during the ten trading day period ending on the latest complete trading day prior to the conversion date. Accrued interest on this note, as of March 31, 2013, was $2,388. Pursuant to the conversion option, in March 2013, the third party converted $15,100 of related debt to 17,527,337 shares of common stock. Convertible Note #2 On October 16, 2012, the Company entered into a securities purchase agreement and convertible note agreement, for $27,500 in cash. The note has a maturity date of July 18, 2013, and carries an interest rate of 8%, per annum. Principal and interest is due on July 18, 2013 and any amount of principal or interest not paid by this date, will accrue interest at 22% per annum. This note, plus accrued interest, is convertible 180 days from the date of the Note, at a variable conversion price of 55% of the lowest three trading prices for the common stock of the Company during the ten trading day period ending on the latest complete trading day prior to the conversion date. Accrued interest on this note, as of March 31, 2013, was $1,000. Convertible Note #3 On December 18, 2012, the Company entered into a securities purchase agreement and convertible note agreement, for $32,500 in cash, which was effective December 31,2012 upon being funded.. The note has a maturity date of September 20, 2013, and carries an interest rate of 8%, per annum. Principal and interest is due on September 30, 2013, and any amount of principal or interest not paid by this date, will accrue interest at 22% per annum. This note, plus accrued interest, is convertible 180 days from the date of the Note, at a variable conversion price of 55% of the lowest three trading prices for the common stock of the Company during the ten trading day period ending on the latest complete trading day prior to the conversion date. Accrued interest on this note, as of March 31, 2013, was $734. Convertible Note #4 On March 27, 2013, the Company entered into a securities purchase agreement and convertible note agreement, for $32,500 in cash. The note has a maturity date of September 20, 2013, and carries an interest rate of 8%, per annum. Principal and interest is due on December 27, 2013, and any amount of principal or interest not paid by this date, will accrue interest at 22% per annum. This note, plus accrued interest, is convertible 180 days from the date of the Note, at a variable conversion price of 55% of the lowest three trading prices for the common stock of the Company during the ten trading day period ending on the latest complete trading day prior to the conversion date. Accrued interest on this note, as of March 31, 2013, was $21. *Derivative Liabilities* Convertible Note #1 The Company has determined that the conversion feature in this note is not indexed to the Company’s stock, and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from 0.06% to 0.17%; Dividend rate of 0%; and, historical volatility rates ranging from 169.42% to 355.27%. Based on this calculation, the Company recorded an initial derivative liability of $59,875 and interest expense of $12,375. This derivative will be remeasured at each reporting period, with the change in fair value being recorded to the statement of operations. The calculated fair values of the derivative liability at September 30, 2012 and December 31, 2012 were $80,197 and $59,491, respectively, and $40,797 as of March 31, 2013. From its initial valuation on August 8, 2012 to March 31, 2013, the Company has recorded a net gain on derivative liability of $19,078, in the statement of operations. Based on the above calculations, the Company also recorded a discount on debt of $47,500. This discount will be amortized to interest expense over the 9 month term of the convertible note. Total amortization for the nine month period ended March 31, 2013, was $42,900, which includes discount amortization of $3,338 related to the conversion of $15,100 to equity. Convertible Note #2 The Company has determined that the conversion feature in this note is not indexed to the Company’s stock, and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from 0.07% to 0.17%; Dividend rate of 0%; and, historical volatility rates ranging from 200.50% to 321.22%. Based on this calculation, the Company recorded a derivative liability of $43,646 and interest expense of $16,146. This derivative will be remeasured at each reporting period, with the change in fair value being recorded to the statement of operations. The calculated fair value of the derivative liability at December 31, 2012 was $42,019,and $37,415 as of March 31, 2013. From its initial valuation on October 16, 2012 to March 31, 2013, the Company has recorded a net gain on derivative liability of $6,231, in the statement of operations. Based on the above calculations, the Company also recorded a discount on debt of $27,500. This discount will be amortized to interest expense over the 9 month term of the convertible note. Total amortization for the nine month period ended March 31, 2013, was $16,600. Convertible Note #3 The Company has determined that the conversion feature in this note is not indexed to the Company’s stock, and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from 0.11% to 0.16%; Dividend rate of 0%; and, historical volatility rates ranging from 200.50% to 346.31%. Based on this calculation, the Company recorded a derivative liability of $52,817 and interest expense of $20,317. This derivative will be remeasured at each reporting period, with the change in fair value being recorded to the statement of operations. The calculated fair value of the derivative liability at March 31, 2013 was $47,848. From its initial valuation on December 18, 2012 to March 31, 2013, the Company has recorded a net gain on derivative liability of $4,969, in the statement of operations. Based on the above calculations, the Company also recorded a discount on debt of 32,500. This discount will be amortized to interest expense over the 9 month term of the convertible note. Total amortization for the nine month period ended March 31, 2013 was $12,173. Convertible Note #4 The Company has determined that the conversion feature in this note is not indexed to the Company’s stock, and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rate of 0.13%; Dividend rate of 0%; and, historical volatility rates ranging from 254.10% to 258.87%. Based on this calculation, the Company recorded a derivative liability of $57,988 and interest expense of $25,488. This derivative will be remeasured at each reporting period, with the change in fair value being recorded to the statement of operations. The calculated fair value of the derivative liability at March 31, 2013 was $57,474. The related gain on the derivative liability of $514 was recorded in the statement of operations for the nine months ending March 31, 2013. Based on the above calculations, the Company also recorded a discount on debt of $32,500. This discount will be amortized to interest expense over the 9 month term of the convertible note. Total amortization for the nine month period ended March 31, 2013 was $348.

6. CONVERTIBLE NOTE PAYABLE AND DERIVATIVE LIABILITY

9 Months Ended

Mar. 31, 2013

6. CONVERTIBLE NOTE PAYABLE AND DERIVATIVE LIABILITY

Convertible Note Payable

Convertible Note #1

On August 8, 2012, the Company entered into a securities purchase agreement and convertible note agreement, for $47,500 in cash. The note has a maturity date of May 10, 2013, and carries an interest rate of 8%, per annum. Principal and interest is due on May 10, 2013 and any amount of principal or interest not paid by this date, will accrue interest at 22% per annum. This note, plus accrued interest, is convertible 180 days from the date of the Note, at a variable conversion price of 55% of the lowest three trading prices for the common stock of the Company during the ten trading day period ending on the latest complete trading day prior to the conversion date. Accrued interest on this note, as of March 31, 2013, was $2,388.

Pursuant to the conversion option, in March 2013, the third party converted $15,100 of related debt to 17,527,337 shares of common stock.

Convertible Note #2

On October 16, 2012, the Company entered into a securities purchase agreement and convertible note agreement, for $27,500 in cash. The note has a maturity date of July 18, 2013, and carries an interest rate of 8%, per annum. Principal and interest is due on July 18, 2013 and any amount of principal or interest not paid by this date, will accrue interest at 22% per annum. This note, plus accrued interest, is convertible 180 days from the date of the Note, at a variable conversion price of 55% of the lowest three trading prices for the common stock of the Company during the ten trading day period ending on the latest complete trading day prior to the conversion date. Accrued interest on this note, as of March 31, 2013, was $1,000.

Convertible Note #3

On December 18, 2012, the Company entered into a securities purchase agreement and convertible note agreement, for $32,500 in cash, which was effective December 31,2012 upon being funded.. The note has a maturity date of September 20, 2013, and carries an interest rate of 8%, per annum. Principal and interest is due on September 30, 2013, and any amount of principal or interest not paid by this date, will accrue interest at 22% per annum. This note, plus accrued interest, is convertible 180 days from the date of the Note, at a variable conversion price of 55% of the lowest three trading prices for the common stock of the Company during the ten trading day period ending on the latest complete trading day prior to the conversion date. Accrued interest on this note, as of March 31, 2013, was $734.

Convertible Note #4

On March 27, 2013, the Company entered into a securities purchase agreement and convertible note agreement, for $32,500 in cash. The note has a maturity date of September 20, 2013, and carries an interest rate of 8%, per annum. Principal and interest is due on December 27, 2013, and any amount of principal or interest not paid by this date, will accrue interest at 22% per annum. This note, plus accrued interest, is convertible 180 days from the date of the Note, at a variable conversion price of 55% of the lowest three trading prices for the common stock of the Company during the ten trading day period ending on the latest complete trading day prior to the conversion date. Accrued interest on this note, as of March 31, 2013, was $21.

Derivative Liabilities

Convertible Note #1

The Company has determined that the conversion feature in this note is not indexed to the Company’s stock, and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from 0.06% to 0.17%; Dividend rate of 0%; and, historical volatility rates ranging from 169.42% to 355.27%. Based on this calculation, the Company recorded an initial derivative liability of $59,875 and interest expense of $12,375. This derivative will be remeasured at each reporting period, with the change in fair value being recorded to the statement of operations. The calculated fair values of the derivative liability at September 30, 2012 and December 31, 2012 were $80,197 and $59,491, respectively, and $40,797 as of March 31, 2013. From its initial valuation on August 8, 2012 to March 31, 2013, the Company has recorded a net gain on derivative liability of $19,078, in the statement of operations.

Based on the above calculations, the Company also recorded a discount on debt of $47,500. This discount will be amortized to interest expense over the 9 month term of the convertible note. Total amortization for the nine month period ended March 31, 2013, was $42,900, which includes discount amortization of $3,338 related to the conversion of $15,100 to equity.

Convertible Note #2

The Company has determined that the conversion feature in this note is not indexed to the Company’s stock, and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from 0.07% to 0.17%; Dividend rate of 0%; and, historical volatility rates ranging from 200.50% to 321.22%. Based on this calculation, the Company recorded a derivative liability of $43,646 and interest expense of $16,146. This derivative will be remeasured at each reporting period, with the change in fair value being recorded to the statement of operations. The calculated fair value of the derivative liability at December 31, 2012 was $42,019,and $37,415 as of March 31, 2013. From its initial valuation on October 16, 2012 to March 31, 2013, the Company has recorded a net gain on derivative liability of $6,231, in the statement of operations.

Based on the above calculations, the Company also recorded a discount on debt of $27,500. This discount will be amortized to interest expense over the 9 month term of the convertible note. Total amortization for the nine month period ended March 31, 2013, was $16,600.

Convertible Note #3

The Company has determined that the conversion feature in this note is not indexed to the Company’s stock, and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rates ranging from 0.11% to 0.16%; Dividend rate of 0%; and, historical volatility rates ranging from 200.50% to 346.31%. Based on this calculation, the Company recorded a derivative liability of $52,817 and interest expense of $20,317. This derivative will be remeasured at each reporting period, with the change in fair value being recorded to the statement of operations. The calculated fair value of the derivative liability at March 31, 2013 was $47,848. From its initial valuation on December 18, 2012 to March 31, 2013, the Company has recorded a net gain on derivative liability of $4,969, in the statement of operations.

Based on the above calculations, the Company also recorded a discount on debt of 32,500. This discount will be amortized to interest expense over the 9 month term of the convertible note. Total amortization for the nine month period ended March 31, 2013 was $12,173.

Convertible Note #4

The Company has determined that the conversion feature in this note is not indexed to the Company’s stock, and is considered to be a derivative that requires bifurcation. The Company calculated the fair value of this conversion feature using the Black-Scholes model and the following assumptions: Risk-free interest rate of 0.13%; Dividend rate of 0%; and, historical volatility rates ranging from 254.10% to 258.87%. Based on this calculation, the Company recorded a derivative liability of $57,988 and interest expense of $25,488. This derivative will be remeasured at each reporting period, with the change in fair value being recorded to the statement of operations. The calculated fair value of the derivative liability at March 31, 2013 was $57,474. The related gain on the derivative liability of $514 was recorded in the statement of operations for the nine months ending March 31, 2013.

Based on the above calculations, the Company also recorded a discount on debt of $32,500. This discount will be amortized to interest expense over the 9 month term of the convertible note. Total amortization for the nine month period ended March 31, 2013 was $348.

SOUTH AMERICAN GOLD CORP. 10-Q