6% SENIOR CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

6% SENIOR CONVERTIBLE NOTES

NOTE 11 – 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 three months ended March 31, 2013, the Company did not borrow any additional principal related to these notes. In fact, the Company’s outstanding principal balance decreased by $483,500 due to certain holders of these 6% Notes converting some, and in the case of one note holder, all of their outstanding principal into shares of the Company’s common stock. The following summarizes the first quarter 2013 transactions related to the Company’s 6% Notes:

6% Notes – principal & interest	$	1,863,099
Debt discount related to conversion feature		(785,459	)
Balance as of December 31, 2012		1,077,640
Principal converted into common stock during Q1 2013		(483,500	)
Accrued interest converted into common stock during Q1 2013		(1,775	)
Accrued and unpaid interest - Q1 2013		22,790
Debt discount amortized as interest expense		(339,038	)
6% Notes – principal & interest		1,400,614
Debt discount related to conversion feature		(446,421	)
Balance as of March 31, 2013	$	954,193

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.

The following is a summary of the 6% Notes that were converted into 69,325,048 shares of the Company’s common stock during the first quarter of fiscal year 2013:

	Amount Converted		Shares Received
W-Net Fund I, LP	$	353,500		50,500,000
Europa International, Inc		70,000		10,000,000
Forglen, LLC		51,775		7,396,477
Carla Badaracco		10,000		1,428,571
	$	485,275		69,325,048