6% SENIOR CONVERTIBLE NOTES

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

6% SENIOR CONVERTIBLE NOTES

NOTE 16 – 6% SENIOR SECURED 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 Secured Convertible Notes (the “6% Notes”) that replaced the 6% Senior Secured 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 year ended December 31, 2013, the Company did not borrow any additional principal related to these notes. In fact, the Company’s outstanding principal balance decreased by $1,326,397 due to certain holders of these 6% Notes converting some, and in the case of six note holders, all of their outstanding principal into shares of the Company’s common stock.

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

6% senior secured convertible notes - principal & accrued interest as of December 31, 2012	$	1,863,099
Principal converted into common stock FY 2013		(1,326,397	)
Accrued interest converted into common stock FY 2013		(75,687	)
Accrued and unpaid interest FY 2013		53,861
6% senior secured convertible notes - principal & accrued interest as of December 31, 2013		514,876
Debt discount related to conversion feature as of December 31, 2012	$	(785,459	)
Debt discount amortized as interest expense FY 2013		683,363
Debt discount related to conversion feature as of December 31, 2013		(102,096	)
Balance as of December 31, 2013	$	412,780

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 $102,096 as of December 31, 2013. Accordingly, the Company recorded non-cash interest expense of $683,363 during the year ended December 31, 2013 to reflect the change in the value of the debt discount as of December 31, 2013.