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7) Convertible Debentures
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Dec. 31, 2012
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| 7) Convertible Debentures | 7) CONVERTIBLE DEBENTURES
As of December 31, 2012 and 2011 convertible debentures consist of the following:
On September 9, 2010 the Company borrowed the sum of $10,000 from an unrelated third party. The convertible debenture is payable on demand and bears interest at the rate of 8% per annum. The loan agreement provides at the option of the note holder to convert their principal balance to 40,000 shares of common stock ($0.25 per share)at any time that the loan remains unpaid. On December 26, 2012 this debenture was converted into 11,947,766 shares of the Company’s common stock.
On April 13, 2011, the Company borrowed the sum of $10,000 from an unrelated third party. The convertible debenture is payable on demand and bears interest at the rate of 10% per annum. The loan agreement provides for the right of this individual to convert the loan into shares of common stock at a stated conversion price of the average of the 3 lowest daily trades in the previous 20 days with a 50% discount. As of December 31, 2012 the $10,000 is payable.
On May 18, 2011, the Company borrowed the sum of $28,000 from an unrelated third party on a non-interest bearing basis and is payable on demand. The loan agreement provides for the right of the holder to convert the outstanding loan into common shares of the Company at any time that the loan remains unpaid, at a conversion price of $.14 per share. As of December 31, 2012 the $28,000 is payable.
On July 17, 2011, the Company borrowed $50,000 from an unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on July 17, 2016. The debenture is convertible into common stock at $0.25 per share. As of December 31, 2012 the $50,000 is payable.
On August 29, 2011, the Company borrowed $75,000 from another unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on August 29, 2016. The debenture is convertible into common stock at $0.25 per share. As of December 31, 2012 the $75,000 is payable.
On September 16, 2011, the Company borrowed $50,000 from an unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on September 16, 2016. The debenture is convertible into common stock at $0.25 per share. On July 19, 2012 the debenture was converted into 208,332 shares of common stock.
On October 25, 2011, the Company borrowed $75,000 from an unrelated third party, pursuant to a convertible debenture agreement. The debenture bears interest at 5% per annum and has a term of 5 years maturing on October 25, 2016. The debenture is convertible into common stock at $0.25 per share. On June 14, 2012 the debenture was converted into 310,000 shares of common stock.
On April 23, 2012, the Company borrowed $350,000 from two unrelated parties pursuant to convertible debenture agreements. The debentures bear interest at 5.0% per annum and have a term of 5 years, maturing on April 22, 2017. The debentures are convertible into common stock at $0.25 per share. As of December 31, 2012 the $350,000 is payable.
On July 10 and August 31, 2012 the Company borrowed $50,000 and $100,000 from two unrelated parties pursuant to convertible debenture agreements. The debentures bear interest at 5.0% and 6% per annum and have a term of 5 years, maturing on July 10 and August 31, 2017. The debentures are convertible into common stock at $0.25 per share. As of December 31, 2012 the $50,000 and $100,000 are payable.
On November 19, 2012 the Company borrowed $55,000 from an unrelated party pursuant to convertible debenture agreements. The debentures bear interest at 5.0% per annum and have a term of 5 years, maturing on November 19, 2017. The loan agreement provides for the right of this individual to convert the loan into shares of common stock at a stated conversion price of the average of the 3 lowest daily trades in the previous 20 days with a 50% discount. As of December 31, 2012 the $55,000 is payable.
The Company accounted for the issuance of the convertible debentures in accordance with ASC 815” Derivatives and Hedging.” The debentures are convertible into an indeterminate number of shares for which the Company cannot determine if it has sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period.
The gross proceed from the sale of the debentures are recorded net of a discount of related to the conversion feature of the embedded conversion option. When the fair value of conversion options is in excess of the debt discount the amount has been included as a component of interest expense in the statement of operations. During the year ended December 31, 2012 and 2011, the Company recorded $155,533 and $539,000, respectively of interest expense relating to the excess fair value of the conversion option over the face value of the debentures. |