Convertible Note Payable

6 Months Ended

Jun. 30, 2011

Note 7 – Convertible Note Payable

Convertible note payable consisted of the following at June 30, 2011 and December 31, 2010, respectively:

	June 30, 2011		December 31, 2010
Unsecured debenture bearing interest at 12%, compounded quarterly, due on June 13, 2013, convertible into shares of common stock at $2.00 per share. The note carries a fourteen percent (14%) interest rate in the event of default. The note is convertible into 25,000 shares of common stock.	$	50,000	$	-

Unsecured debenture bearing interest at 12%, compounded quarterly, due on May 17, 2013, convertible into shares of common stock at $2.00 per share. The note carries a fourteen percent (14%) interest rate in the event of default. The note is convertible into 25,000 shares of common stock.		50,000		-

Unsecured debenture bearing interest at 12%, compounded quarterly, due on April 7, 2013, convertible into shares of common stock at $2.00 per share. The note holder also received warrants to purchase 7,500 shares at $2 per share over a four year period from the date of issuance on April 7, 2011. The note is convertible into 7,500 shares of common stock.		15,000		-

Unsecured debenture bearing interest at 30%, with interest payments of $250 per month, maturing on October 2, 2011, convertible into shares of common stock at $2.00 per share. The note is convertible into 5,000 shares of common stock.		10,000		-

Unsecured debenture bearing interest at 12%, compounded quarterly, due on June 16, 2012, convertible into shares of common stock at $2.00 per share. The note carries a fourteen percent (14%) interest rate in the event of default. The note is convertible into 125,000 shares of common stock.		250,000		250,000
Total convertible notes payable		375,000		250,000
Less: unamortized discount on beneficial conversion feature		240,874		237,219
Less: current portion		19,126		-
Convertible note payable	$	115,000	$	12,781

The convertible notes were evaluated to determine if they contained an embedded derivative under ASU 815-15. The terms of the convertible notes did not include provisions that would trigger embedded derivative accounting. In addition, the Company recognized and measured the embedded beneficial conversion feature present in the convertible debts by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price of the convertible debt. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt.

The aforementioned accounting treatment resulted in a total debt discount equal to $265,000. The discount is amortized over a two year period, from the date of issuance until the stated redemption date of the debt. As of June 30, 2011, $24,126 of the beneficial conversion features was amortized.

On April 7, 2011 the Company granted 7,500 warrants as part of the investment of $15,000 in exchange for the convertible promissory note. Of these warrants, 7,500 are fully vested and are exercisable until April 7, 2015 at an exercise price of $2.00 per share.

On June 16, 2010 the Company granted a total of 625,000 warrants as part of the investment of $250,000 in exchange for the convertible promissory note. Of these warrants, 250,000 are fully vested and are exercisable until June 16, 2014 at an exercise price of $2.50 per share. Another 125,000 warrants were fully vested and were exercisable until December 13, 2010 at an exercise price of $2.00 per share. These shares were exercised on December 13, 2010, and as such, 125,000 shares were issued in exchange for proceeds of $250,000. Another 250,000 warrants are vested after December 13, 2010 upon the successful exercise of the 125,000 warrants that expired on that day, and are exercisable until December 13, 2014 at an exercise price of $2.50 per share.

No shares have been issued pursuant to the debt conversion as of July 30, 2011.

Accrued interest on the above promissory notes totaled $33,351 and $16,151 at June 30, 2011 and December 31, 2010, respectively.

Interest expense totaled $17,200, including $11,345 of expense related to the amortization of the beneficial conversion feature, for the six months ended June 30, 2011. No interest expense was incurred during the six months ended June 30, 2010.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details

Tiga Energy Services Inc. 10-Q/A