CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

3 Months Ended

Mar. 31, 2014

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it meets the definition of “conventional convertible” debt under paragraph 4 of EITF 00-19, which was ultimately superseded by ASC 470.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 as of March 31, 2014:

Issue	Maturity	March 31,			Interest			Conversion
Date	Date	2014			Rate			Rate
Convertible notes Payable:
January 28, 2013	January 28, 2014	$	-			6.00	%		0.0050
January 28, 2013	January 28, 2014		-			6.00	%		0.0050
October 21, 2013	April 21, 2014		40,000			6.00	%		0.0100
October 4, 2013	May 12, 2014		50,000			6.00	%		0.0125
October 30, 2013	October 30, 2014		50,000			6.00	%		0.0125
January 16, 2014	July 16, 2014		50,000			6.00	%		0.0125
March 11, 2014	September 11, 2014		5,005			6.00	%		0.0125
March 17, 2014	March 17, 2015		40,000			6.00	%		0.0125
			235,005
Unamortized discounts			(94,099	)
Balance		$	140,906
Convertible notes payable, in default
October 31, 2012	April 30, 2013	$	8,000			6.00	%		0.0040
July 16, 2012	July 30, 2013		5,000			6.00	%		0.0050
November 20, 2012	May 20, 2013		50,000			6.00	%		0.0050
January 19, 2013	July 30, 2013		5,000			6.00	%		0.0040
January 28, 2013	January 28, 2014		25,000			6.00	%		0.0050
January 28, 2013	January 28, 2014		25,000			6.00	%		0.0050
February 11, 2013	August 11, 2013		9,000			6.00	%		0.0040
September 25, 2013	March 25, 2014		10,000			6.00	%		0.0125
August 28, 2009	November 1, 2009		4,300			10.00	%		0.0150
April 7, 2010	November 7, 2010		70,000			6.00	%		0.0080
November 12, 2010	November 7, 2011		40,000			6.00	%		0.0080
			251,300
Unamortized discount			-
Balance		$	251,300
Convertible notes payable - related party, in default
January 7, 2013	June 30, 2013		7,500			6.00	%		0.0040
January 19, 2013	July 30, 2013		15,000			6.00	%		0.0040
February 7, 2013	August 7, 2013		10,000			6.00	%		0.0040
July 9, 2013	January 19, 2013		15,000			6.00	%		0.0150
January 9, 2009	January 9, 2010		10,000			10.00	%		0.0150
January 25, 2010	January 25, 2011		6,000			6.00	%		0.0050
January 18, 2012	July 18, 2012		50,000			8.00	%		0.0040
July 17, 2013	January 17, 2014		30,000			6.00	%		0.0040
July 26, 2013	January 26, 2014		10,000			6.00	%		0.0040
			153,500
Unamortized discount			-
Balance		$	153,500
Convertible notes payable - related party
November 12, 2013	May 12, 2014		11,000			6.00	%		0.0210
July 17, 2014	July 17, 2014		31,500			6.00	%		0.0210
			42,500
Unamortized discount			(20,542	)
Balance		$	21,958

The discounts on the convertible notes arose from the allocation of basis to the beneficial conversion feature. The discount is amortized through charges to interest expense over the term of the debt agreement. For the three months ended March 31, 2013, the Company recorded interest expense related to the amortization of debt discounts in the amount of approximately $33,000. The aggregate carrying value of these convertible notes at March 31, 2013 was $162,864.

Notes Payable

The following table reflects the notes payable as of March 31, 2014 and December 31, 2013:

Issue Date	Maturity Date	March  31, 2014		December 31, 2013		Interest Rate
Notes payable, in default –related parties:
February 24, 2010	February 24, 2011	$	7,500		7,500		6.00	%
Notes payable, in default:
June 23, 2011	August 23, 2011		25,000		25,000		6.00	%
April 27, 2011	April 27, 2012		5,000		5,000		6.00	%
			30,000		30,000
		$	37,500		37,500

At March 31, 2014 and December 31, 2013, combined accrued interest on the convertible notes payable, notes payable and stockholder loans was $68,459 and $59,267, respectively, and included in accounts payable and accrued liabilities on the accompanying balance sheets.

As of March 31, 2014, the Company has outstanding one (1) Security Purchase Agreements with accredited investors for the sale of convertible promissory notes bearing interest at 6.0% per annum. Pursuant to the convertible promissory notes the investor may convert the amount paid towards the Securities Purchase Agreements into common stock of the Company at a conversion price equal to 57% of the lowest bid price of during the 15 day period ending on the conversion date. Trading price means the closing bid price on the OTC Market Over-the-Counter Bulletin Board Pink Sheets.

The conversion rights embedded in the 6% Notes are accounted for as a derivative financial instruments because of the down round feature of the conversion price. The beneficial conversion feature was valued at the date of issuance using the Black-Scholes-Merton options pricing model with the following assumptions: risk free interest rates ranging from 0.130%, contractual expected life of nine (12) months, expected volatility of 49%, calculated using the historical closing price of the Company’s common stock, and dividend yield of zero, resulting in fair market value of $31,579.

As of March 31, 2014, the Company has outstanding three (3) Security Purchase Agreements with accredited investors for the sale of convertible promissory notes bearing interest at 6.0% per annum. Pursuant to the convertible promissory notes the investor may convert the amount paid towards the Securities Purchase Agreements into common stock of the Company at a conversion price equal to $0.006.

The conversion rights embedded in the 6% Notes are accounted for as a beneficial conversion feature. The beneficial conversion feature resulted in debt discounts totaling approximately $86,000.