CONVERTIBLE LOAN

3 Months Ended

Sep. 30, 2012

6.	CONVERTIBLE LOAN

In May 2012, the Company entered into a loan agreement for the principal amount of CAD$475,000 (the “Loan”). The Loan was advanced to the Company, subject to certain conditions, according to the following schedule:

	(i)	CAD$175,000 on April 25, 2012;
	(ii)	CAD$18,000 on May 23, 2012;
	(iii)	CAD$150,000 on June 25, 2012;
	(iv)	CAD$132,000 on July 23, 2012.

	The loan accrues interest at 9% per annum from the date of the first advance and matures on April 23, 2015. The loan is secured by certain assets.

	At any time lender may elect to receive shares in exchange for any portion of the principal or interest outstanding on the Loan on the basis of one share for each USD $0.02 of indebtedness converted. In the event of a default, the lender may elect to receive shares on the basis of one share for each USD $0.01 of indebtedness converted (Note 1).

	On comparison of the conversion price to the fair value of the Company’s common stock at issuance, the Company recorded a beneficial conversion feature of $472,123 (CAD$475,000), representing the entire proceeds received. This amount was recorded as a discount to the convertible notes with an offset to additional paid-in capital. The discount will be amortized over the term of the convertible notes and recorded as interest expense. The convertible debt will be accreted over its term to its principal amount at maturity. During the period ended September 30, 2012, the Company record interest expense of $148,517 (2011 - $nil) as a result of amortizing the discount due to the event of default noted below.

	As at September 30, 2012, a principal balance of $482,800 (CAD$475,000) is outstanding. Included in accounts payable and accrued liabilities is accrued interest of $13,913. During the period ended September 30, 2012, the Company defaulted on the interest payment which was due on September 30, 2012. The Company received a notice of default and has recorded the full principal balance as a current liability as at September 30, 2012.

QUANTUM SOLAR POWER CORP. 10-Q