Convertible Notes Payable and Notes Payable

3 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

Convertible Notes Payable and Notes Payable

NOTE 8 - CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

Upon inception, the Company evaluates each financial instrument to determine whether it meets the definition of “conventional convertible” debt under paragraph 4 of EITF 00-19, which was ultimately superseded by ASC 470.

Convertible Notes Payable

The following table reflects the convertible notes payable, other than the one remeasured to fair value, which is discussed in Note 10, as of September 30, 2012 and December 31, 2011:

Issue Date	Maturity Date	September 30, 2012		December 31, 2011		Interest Rate			Conversion Rate
Convertible notes payable:
November 9, 2011	December 31, 2012	$	35,000	$	35,000	6.00		%	0.004
February 17, 2012	February 17, 2013	7,500		--		6.00		%	0.004
April 5, 2012	April 5, 2013	15,000		--		6.00		%	0.005
July 16, 2012	July16, 2013	5,000		--		6.00		%	0.005
			62,500		35,000
Convertible notes payable, in default :
August 28, 2009	November 1, 2009		4,300		4,300		10.00	%		0.0150
April 7, 2010	November 7, 2010		70,000		70,000		6.00	%		0.0080
November 12, 2010	November 12, 2011		40,000		40,000		6.00	%		0.0080
			114,300		114,300
Convertible notes payable – related parties, in default:
January 9, 2009	January 9, 2010		10,000		10,000		10.00	%		0.0150
January 25, 2010	January 25, 2011		6,000		6,000		6.00	%		0.0050
January 18, 2012	July 18, 2012		50,000		--		8.00	%		0.004
			66,000		16,000
		$	242,800	$	165,300

The convertible notes payable classified as “in default” are in default as of the date this quarterly report on Form 10-Q was ready for issue.

Notes Payable

The following table reflects the notes payable as of September 30, 2012 and December 31, 2011:

Issue Date	Maturity Date	September 30, 2012		December 31, 2011		Interest Rate
Notes payable, in default –related parties:
February 24, 2010	February 24, 2011	$	7,500	$	7,500		6.00	%
Notes payable:
April 27, 2011	April 27, 2012		--		5,000		6.00	%
Notes payable, in default:
February 23, 2011	March 23, 2011		--		20,000		7.00	%
June 23, 2011	August 23, 2011		25,000		25,000		6.00	%
April 27, 2011	August 23, 2011		5,000		--		6.00	%
			30,000		45,000
		$	37,500	$	57,500

The Company entered into a verbal promissory note agreement with a related party shareholder under which the related party shareholder agreed to provide the Company with an emergency short term loan in the amount of $2,500. The related party shareholder agreed to provide the loan to the Company at 0% rate of interest and the Company agreed to pay the related party shareholder 200,000 restricted shares of its common stock as an equity kicker in exchange for providing the emergency no interest rate loan. The Company repaid the entire loan balance prior to September 30, 2012.

A related party shareholder provided the Company with emergency short term loan proceeds totaling $5,000. The Company repaid the related party shareholder the entire $5,000 balance prior to September 30, 2012. The Company did not pay any interest or fees to the related party shareholder for providing the short term loan.

At September 30, 2012 and December 31, 2011, combined accrued interest on the convertible notes payable, notes payable and stockholder loans was $32,863 and $11,769, respectively, and included in accounts payable and accrued liabilities on the accompanying balance sheets. Management intends to have discussions or has already had discussions with several of the promissory note holders who do not currently have convertible notes regarding amending their notes to make them convertible into shares of the Company’s common stock. Any such agreements to convert promissory notes into shares of the Company’s common stock would more than likely have a highly dilutive effect on current shareholders and such dilution may significantly depress the trading price of the Company’s common stock.

Convertible Notes Payable and Notes Payable, in Default

At September 30, 2012, the Company had convertible notes payable, notes payable and stockholder loans of $280,300, of which $217,800 were in default.  The convertible notes payable and notes payable in default at September 30, 2012 are reflected in the tables shown above.

The Company does not have additional sources of debt financing to refinance its convertible notes payable and notes payable that are currently in default. If the Company is unable to obtain additional capital, such lenders may file suit, including suit to foreclose on the assets, including foreclosure on the Company’s main salvage vessel, held as collateral for the obligations arising under the secured notes. If any of the lenders file suit to foreclose on the assets held as collateral, then the Company may be forced to significantly scale back or cease its operations which would more than likely result in a complete loss of all capital that has been invested in or borrowed by the Company. The fact that the Company is in default regarding several loans held by various lenders makes investing in the Company or providing any loans to the Company extremely risky with a very high potential for a complete loss of capital.

The convertible notes that have been issued by the Company are convertible at the lender’s option. These convertible notes represent significant potential dilution to the Company’s current shareholders as the convertible price of these notes is generally lower than the current market price of the Company’s shares. As such when these notes are converted into equity there is typically a highly dilutive effect on current shareholders and very high probability that such dilution may significantly negatively affect the trading price of the Company’s common stock.

Furthermore, management intends to have discussions or has already had discussions with several of the promissory note holders who do not currently have convertible notes regarding converting their notes into equity. Any such amended agreements to convert promissory notes into equity would more than likely have a highly dilutive effect on current shareholders and there is a very high probability that such dilution may significantly negatively affect the trading price of the Company’s common stock. Some of these note holders have already amended their non-convertible notes to be convertible and converted the notes into equity. Based on conversations with other note holders, the Company believes that additional note holders will amend their notes to contain a convertibility clause and eventually convert the notes into equity.