6% SENIOR CONVERTIBLE NOTES

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

6% SENIOR CONVERTIBLE NOTES

NOTE 13 – 6% SENIOR CONVERTIBLE NOTES

On September 28, 2012, the Company entered into an amendment and exchange agreement (“Exchange Agreement”) with W-Net, Europa International, Inc., Sterling Scott, Robert Shapiro, Lauri Bilawa, Carla Badaracco and Forglen, LLC (the “Investors”). The Exchange Agreement provided for the issuance of new 6% Senior Convertible Notes (the “6% Notes”) that replaced the 6% Senior Convertible Notes that were previously issued during 2012. The 6% Notes accrue interest at the rate of 6% per annum and have a maturity date of April 15, 2015. No cash payments are required; however, accrued interest shall be due at maturity. In the event of a default the Investors may declare the entire principal and accrued interest to be due and payable. Default interest will accrue at the rate of 12% per annum. The 6% Notes are secured by substantially all of the assets of the Company.

The 6% Notes are convertible into common stock at the rate of $0.007 per share. The Company has determined that the conversion feature is considered a beneficial conversion feature and determined its value to be $785,459 as of December 31, 2012, which the Company recorded as a debt discount to the 6% Notes. As of December 31, 2012 the Company owed principal of $1,795,077 and accrued interest of $68,022 on these 6% Notes.

During the nine months ended September 30, 2013, the Company did not borrow any additional principal related to these notes. In fact, the Company’s outstanding principal balance decreased by $1,286,397 due to certain holders of these 6% Notes converting some, and in the case of five note holders, all of their outstanding principal into shares of the Company’s common stock.

The following is a summary of the year-to-date 2013 transactions related to the Company’s 6% Notes:

6% senior secured convertible notes - principal & accrued interest as of 12.31.12	$	1,863,099
Principal converted into common stock YTD 2013		(1,286,397	)
Accrued interest converted into common stock YTD 2013		(73,175	)
Accrued and unpaid interest YTD 2013		46,352
6% senior secured convertible notes - principal & accrued interest as of 09.30.13		549,879
Debt discount related to conversion feature as of 12.31.12	$	(785,459	)
Debt discount amortized as interest expense YTD 2013		653,873
Debt discount related to conversion feature as of 09.30.13		(131,586	)
Balance as of September 30, 2013	$	418,293

As previously stated, the Company has determined that the conversion feature on the 6% Notes is a beneficial conversion feature, and the Company determined that the value of the beneficial conversion feature had decreased to $446,421 as of March 31, 2013. Accordingly, the Company recorded non-cash interest expense of $339,038 to reflect the change in the value of the debt discount as of March 31, 2013.

During the three month period ending June 30, 2013, the Company determined that the value of the beneficial conversion feature had decreased to $203,968 as of June 30, 2013. As a result, the Company recorded non-cash interest expense of $242,453 to reflect the change in the value of the debt discount as of June 30, 2013.

During the three month period ending September 30, 2013, the Company determined that the value of the beneficial conversion feature had decreased to $131,586 as of September 30, 2013. As a result, the Company recorded non-cash interest expense of $72,382 during the three months ended September 30, 2013 to reflect the change in the value of the debt discount as of September 30, 2013.