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Note 6 Convertible Debentures
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3 Months Ended | ||
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Sep. 30, 2012
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| Notes | |||
| Note 6 Convertible Debentures |
The principal balance due to Mammoth on September 30, 2012 was $108,788 (the “Mammoth Debenture”). The Mammoth Debenture is convertible at a rate equal to 100% of the price for the Company’s common stock on the day prior to conversion. Prior to June 30, 2012, the Mammoth Debenture was convertible into Company common stock at a rate equal to 50% of the lowest reported closing market price for the Company’s common stock for the five trading days preceding conversion. The Company accounted for the Mammoth Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Mammoth Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Mammoth Debenture at December 31, 2011 to be $560,108 which represented the face value of the debenture of $280,054 plus the present value of the conversion feature. During the nine months ended September 30, 2012, the Company recognized a reduction in conversion liability at present value of $40,000 for conversions during the period. The Mammoth Debenture was originally issued on September 30, 2011, in connection with the restructuring of debt previously owed by the Company to both Mammoth and Minority Interest Fund (II), LLC (“MIF”). The terms of the applicable restructuring agreement called for the consolidation of each parties debentures with the Company into one amended and restated debenture issued to Mammoth which remained subject to various terms requiring Mammoth’s moving-forward compliance. Mammoth subsequently failed to comply with those terms, which resulted in the termination of MIF’s September 30, 2011 agreement with Mammoth and the issuance by the Company of two amended and restated debentures on April 27, 2012: the Mammoth Debenture with a balance of $108,788 and an amended and restated debenture issued to MIF with a balance of $160,565. The Mammoth Debenture was further amended to eliminate the conversion discount, resulting in the elimination of the underlying conversion liability. On the same date, MIF entered into an agreement with the Company to convert the entire outstanding balance of principal and accrued interest due under its debenture into 484,615 Series D Shares. MIF later agreed on May 23, 2012 to cancel 124,615 Series D Shares in connection with the Company’s planned merger transaction with its wholly owned subsidiary, Oxysonix Corporation and in consideration for the Company’s agreement to issue MIF a fixed amount of common shares (128,113 shares) upon completion of the Company’s planned merger in exchange for 300,000 Series D Shares (corresponding to a price of $1.25 per common share on a post-merger basis). This exchange modified MIF’s Series D Shares to the amended conversion provisions of the restated Series D Shares.
Long Side Ventures (“LSV”), the successor to Sunny Isle Ventures (“SIV”), held a debenture in the amount of $32,500 as of July 14, 2010 (the “LSV Debenture”). The LSV Debenture is convertible into Company common stock at a rate equal to 50% of the average closing market price for the Company’s common stock for the five trading days preceding conversion. The Company accounted for the LSV Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the LSV Debentures could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the LSV Debentures at December 31, 2011 to be $31,654 which represented the face value of the debenture of $15,827 plus the present value of the conversion feature. During the six months ended June 30, 2012, the Company recognized a reduction in conversion liability at present value of $10,760 for conversions during the period. The carrying value of the LSV Debentures was $10,134 at June 30, 2012, and included principal of $5,067 and the value of the conversion liability. The liability for the conversion feature of $10,134 at June 30, 2012 is equal to its estimated settlement value. Interest expense of $600 for these obligations was accrued for the six months ended June 30, 2012.
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