6% SENIOR CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

6% SENIOR CONVERTIBLE NOTES

NOTE 16 – 6% SENIOR SECURED CONVERTIBLE NOTES PAYABLE

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 and 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 $102,096 as of December 31, 2013, which the Company recorded as a debt discount to the 6% Notes. As of December 31, 2013 the Company owed principal of $468,680 and accrued interest of $46,196 on these 6% Notes.

On January 3, 2014, a Holder of these 6% convertible notes converted their entire $30,000 of principal and $2,901 of accrued and unpaid interest into 4,700,196 shares of the Company’s common stock at a per share conversion price of $0.007. Upon conversion of the $30,000 of principal, the Company recorded $6,535 of non-cash interest expense to fully amortize the remaining debt discount associated with the $30,000 of principal that was converted on January 3, 2014. After this conversion, this Holder had been paid in full by the Company.

During the three month period ended March 31, 2014, the Company did not borrow any additional funds related to these 6% convertible notes nor did either of the two (2) remaining Holders, one of which is Sterling Scott, the Company’s Chief Executive Officer, convert any of their principal and/or accrued and unpaid interest. For the three month period ended March 31, 2014, the Company recorded $6,505 of interest expense related to these 6% convertible notes while also recording $24,453 of non-cash interest expense related to the amortizing of its related debt discount.

The following is a summary of the year-to-date 2014 transactions related to the Company’s 6% Notes:

Principal as of December 31, 2013	$	468,680
Accrued and unpaid interest as of December 31, 2013		46,196
Debt discount		(102,096	)
Principal and accrued interest as of December 31, 2013, net of debt discount		412,780
Accrued and unpaid interest January - March 2014		6,505
Principal converted January - March 2014		(30,000	)
Interest converted January - March 2014		(2,901	)
Debt discount amortized January - March 2014		24,453
Principal and accrued interest as of March 31, 2014, net of debt discount	$	410,837

On April 10, 2014, as a result of the suspension in the trading of the Company’s securities, the Company went into default on these 6% senior secured convertible notes (see “NOTE 23 – SUBSEQUENT EVENTS”). As a result, the Company is now accruing interest on these notes at the applicable “default” rate of interest as stipulated in the note agreements. Furthermore, as a result of being in default on these notes, the Holders can, at their sole discretion, call these notes. Although no such action has been taken by the Holders at the time of this filing, the Company has reclassified these notes as a current liability rather than long-term debt.