RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

RELATED PARTY ADVANCES

NOTE 8 – RELATED PARTY TRANSACTIONS

From time to time the Company’s Chief Executive Officer (CEO) has advanced various amounts to the Company. As of December 31, 2011, the amount due the CEO was $183,103, and additional advances of $98,897 were made to the Company through April 5, 2012. On April 5, 2012, the CEO converted $282,000 of these advances into a 6% senior convertible note. The CEO made further advances during the year ended December 31, 2012 which were converted into a 6% senior convertible note.

During the second quarter of 2011, we entered into a revolving line of credit with W-Net Fund I, L.P. (“W-Net”). Under the terms of the related agreement, we were able borrow up to an aggregate of $150,000 and the outstanding balance included interest at the rate of 12% per annum. The note evidencing the outstanding balance was unsecured and was due on or before May 2, 2012. On August 13, 2011, the outstanding balance on this note was rolled into a new promissory note to W-Net. The initial balance on this new promissory note was $255,408. On September 27, 2011, we borrowed an additional $40,000 from W-Net under the same terms. On October 12, 2011, the outstanding note balance plus accrued interest was converted into a senior secured promissory note payable to W-Net (the “W-Net Note”). The W-Net Note was secured by substantially all of our assets and three trademarks and accrued interest at the per annum rate of 12%. On December 22, 2011, we entered into a Revolving Promissory Note (the “Revolving Note”) with W-Net. Under the terms of the Revolving Note, W-Net agreed to advance to us, from time to time and at W-Net’s discretion, amounts up to an aggregate of $150,000 pursuant to requests made by us until December 31, 2012. All advances shall be paid on or before December 31, 2013 and interest shall accrue from the date of any advance on any principal amount withdrawn, and on accrued and unpaid interest thereon, at the rate of twelve percent (12%) per annum, compounded annually. Our obligations under the Revolving Note will accelerate, upon written notice from W-Net, upon a bankruptcy event with respect to us, any default in our payment obligations or our breach of any provision of any material agreement between us and W-Net. Upon an event of default, the Revolving Note will bear interest at the rate of 12% per annum, compounded annually. On March 16, 2012, the outstanding note balances plus accrued interest were converted into a 6% Senior Secured Convertible Note. Such note pays 6% interest per annum with a maturity date of April 15, 2015 and is secured by substantially all of our assets and three trademarks. If there is an uncured event of default under such note, W-Net may declare the entire principal and accrued interest amount immediately due and payable. Default interest will accrue after an event of default at an annual rate of 12%. On September 28, 2012, the Company entered into an Amendment and Exchange Agreement with W-Net. The Exchange Agreements amended the Securities Purchase and Exchange Agreement, dated as of March 16, 2012. W-Net agreed to exchange the existing Notes and $491,268 of loans owed by the Company for Amended and Restated 6% Senior Secured Convertible Notes which are convertible into shares of the Company’s common stock in accordance with the terms thereof at an exercise price of $0.007 per share, and provide for no price-based anti-dilution protection. On March 13, 2013, we terminated the Revolving Note. As of December 31, 2012, $808,902 was outstanding on the W-Net Note.

On March 16, 2012, we issued a 6% Senior Secured Convertible Note (the “Europa Note”) to Europa, in the original principal amount of $205,128.77 in exchange for, among other things, a promissory note previously issued by us. The Europa Note pays 6% interest per annum with a maturity date of April 15, 2015. Our obligations under the Europa Note would accelerate upon our bankruptcy, any default by us of our payment obligations under the Europa Note or our breach of any provision of any material agreement between us and Europa. Default interest will accrue after an event of default at an annual rate of 12%. The Europa Note is convertible at any time into common stock at a specified conversion price $0.007 per share. As of December 31, 2012, $254,257 was outstanding on the Europa Note. On September 28, 2012, the Company entered into an Amendment and Exchange Agreement with Europa. The Exchange Agreements amended the Securities Purchase and Exchange Agreement, dated as of March 16, 2012. Europa agreed to exchange the existing Notes and $100,000 of loans owed by the Company for Amended and Restated 6% Senior Secured Convertible Notes which are convertible into shares of the Company’s common stock in accordance with the terms thereof at an exercise price of $0.007 per share, and provide for no price-based anti-dilution protection.

In connection with the Merger, on April 5, 2012, we issued a 6% Senior Secured Convertible Note to (a) Sterling C. Scott, our Chief Executive Officer, in the original principal amount of $282,000 (the “Scott Note”) and (b) Lauri S. Bilawa, a beneficial owner of more than 5% of our outstanding common stock, in the original principal amount of $193,000 (the “Bilawa Note”), in exchange for promissory notes previously issued by SGT. The Scott Note and Bilawa Note (collectively, the “SGT Notes”) pay 6% interest per annum with a maturity date of April 15, 2015. Our obligations under the SGT Notes would accelerate upon our bankruptcy, any default by us of our payment obligations under the SGT Notes or our breach of any provision of any material agreement between us and such noteholders. Default interest will accrue after an event of default at an annual rate of 12%. The SGT Notes are convertible at any time into common stock at a specified conversion price$0.007 per share. As of December 31, 2012, $201,503 was outstanding on the Bilawa Note. On September 28, 2012, the Company entered into an Amendment and Exchange Agreement with Sterling Scott and Lauri Bilawa. The Exchange Agreements amended the Securities Purchase and Exchange Agreement, dated as of March 16, 2012. Sterling Scott agreed to exchange the existing Notes and $131,680 of loans owed by the Company for Amended and Restated 6% Senior Secured Convertible Notes which are convertible into shares of the Company’s common stock in accordance with the terms thereof at an exercise price of $0.007 per share, and provide for no price-based anti-dilution protection. As of December 31, 2012, $429,111 was outstanding on the Scott Note.

Commencing in August 2012, outside board members were awarded 2,000,000 shares per year which vest quarterly.