7. SHORT-TERM DEBT

3 Months Ended

Mar. 31, 2012

Short-term debt at March 31, 2012 and December 31, 2011 consisted of the following:

	March 31,			December 31,
Description	2012			2011
	(unaudited)
Secured loan agreement with a face amount of $155,000 bearing interest at 10% payable November 21, 2012 ( A) (B) (D)	$	155,000		$	155,000
Secured loan agreement with a face amount of $175,000 bearing interest at 10% payable November 1, 2012 (A) (B) (D)		175,000			175,000
Secured loan agreement with a face amount of $30,000 bearing interest at 10% payable October 14, 2012 ( A) (B) (C) (E)		30,000			30,000
Secured loan agreement with a face amount of $25,000 bearing interest at 10% payable October 18, 2012 ( A) (B) (C) (E)		25,000			25,000
Secured factoring loan agreement with a face amount of $282,537 bearing interest at 10% payable July 23, 2012 and August 13, 2012 ( A) (B)		282,537			282,537

Total short-term debt before discount on debt		667,537			667,537
Discount on Debt (D)		(128,007	)		(547,047)
Total short-term debt	$	539,530		$	120,490

On June 15, 2011, the Company entered into a Secured Factoring Loan with a principal amount of $426,680 with four lenders, total amount received on the Secured Factoring Loans was $400,000 of which $125,000 was purchased by a director of the Company and $200,000 was purchased by a principal shareholder (See Related Party Note 6). These notes matured on August 20, 2011 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities. On August 24, 2011 these notes were converted into recast notes described in (D) below.

On July 14, 2011, July 28, 2011 and July 29, 2011 the Company issued Original Issue Discount Notes with three lenders receiving amounts of $75,000 from a principal shareholder, and $50,000 and $25,000 respectively from other investors. These notes mature on January 14, 2012 at $170,458 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities, of which $85,227 was due to Lorraine DiPaolo, a principal shareholder of the Company. On August 24, 2011 these notes were converted into the recast notes described below.

Between September 13 and 16, 2011, the Company borrowed $250,000 from two investors, one of whom is a principal shareholder of the Company for $125,000 and refinanced an existing unsecured loan with one officer in the amount of $30,100. The Company issued to these investors and officers the same 10% Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Additionally, such investors received an additional 5 shares of our common stock for each $1.00 invested totaling 1,400,500 common shares (625,000 included in shares issuable). The common shares were fair valued at $62,500 as debt discount and will be amortized over the term of the notes.

Between December 1 and December 21, 2011 the Company borrowed $330,000 from an investor. We issued to these investors the same 10% Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Additionally, such investors received an additional 5 shares of our common stock for each $1.00 invested totaling 1,650,000 common shares (1,650,000 shares included in shares issuable). The shares were valued at $565,890 as debt discount and will be amortized over the term of notes. In addition we agreed in a side letter to revenue participation based on 2% of the first $2,000,000 of revenue and 3% of revenue above $2,000,000 in 2012. This agreement may be terminated by the Company with a penalty of 3 times the annual revenue participation. On July 11, 2012 both notes were converted into common stock.

During first quarter of 2012, the Company reclassified approximately $349,000 of debt discount to additional paid in capital due to previously over allocated embedded beneficial conversation in excess of carrying value of the related notes.

On October 18, 2011 and November 14, 2011 the Company borrowed $25,000 and $30,000 from one investor. The Company issued to this investor the same 10% Secured Convertible Subordinated Notes as we had issued to the lenders reported in the above paragraph E. Additionally, such investor received an additional 5 shares of our common stock for each $1.00 invested, totaling 275,000 common shares (275,000 included in shares issuable). The common shares were fair valued at $12,313 as debt discount and will be amortized over the term of the notes

- Definition

The entire disclosure for short-term debt.

+ References+ Details

New Leaf Brands, Inc. 10-Q/A