7) Convertible Debentures

6 Months Ended

Jun. 30, 2013

7) Convertible Debentures

7) CONVERTIBLE DEBENTURES

On January 24, 2013, the Company borrowed $100,000 from an unrelated party pursuant to convertible debenture agreements. The debentures bear interest at 8.0% per annum and have a term of one year, maturing on January 24, 2014. The loan agreement provides for the right of the holder to convert the loan principal and interest into shares of common stock at a stated conversion price of the average of the three lowest daily trades in the previous 20 days with a 50% discount.

On April 22, 2012 the Company borrowed $15,000 from a unrelated party pursuant to convertible debenture agreement. The debentures bear interest at 6% per annum and have a term of one and a quarter years, maturing on August 31, 2014. The debentures are convertible into common stock at $0.25 per share.

On May 24, 2013, the Company borrowed $30,000 from an unrelated party pursuant to convertible debenture agreements. The debentures bear interest at 10% per annum and have a term of one year, maturing on May 24, 2014. The loan agreement provides for the right of the holder to convert the loan principal and interest into shares of common stock at a stated conversion price of the average of the three lowest daily trades in the previous 20 days with a 50% discount.

As of June 30, 2013 and December 31, 2012 convertible debentures consist of the following:


			June 30, 2013		December 31, 2012

Convertible Debentures		$	1,013,000	$	868,000
Less current portion			81,000		38,000
Less debt discount			508,700		467,200
Long term Convertible Debentures, net of current portion and debt discount		$	423,300	$	362,800

The Company accounted for the issuance of the convertible debenture in accordance with ASC 815” Derivatives and Hedging.” The debenture is 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 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.

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