Convertible Debentures

3 Months Ended

Mar. 31, 2017

Debt Disclosure [Abstract]

Convertible Debentures

11. CONVERTIBLE DEBENTURES

Convertible debentures consist of the following at March 31, 2017 and December 31, 2016:

Origination Date	Maturity Date	Interest Rate			Origination Principal		Origination Discount			March 31, 2017 Debenture Balance		March 31, 2017 Accrued Interest		December 31, 2016 Debenture Balance		December 31, 2016 Accrued Interest		Ref.
5/3/2011	5/5/2012		10	%		300,000		(206,832	)		300,000		177,500		300,000		170,000		(1	)
8/31/2011	8/31/2013		5	%		10,000		(4,286	)		10,000		2,813		10,000		2,687		(2	)
2/10/2012	2/10/2014		10	%		39,724		—			2,743		4,124		2,743		4,055		(3	)
										$	312,743	$	184,437	$	312,743	$	176,742

Reference numbers in right hand column of table entitled Ref. refer to paragraphs with corresponding numbers that immediately follow this paragraph.

(1) On May 3, 2011, the Company borrowed $300,000 in exchange for a convertible debenture. The Debenture bears 10% interest per annum. The lender may at any time convert any portion of the debenture to common shares at a 30% discount of the “Market Price” of the stock based on the average of the previous ten (10) days weighted average closing prices on the date prior to the notice of conversion. The Company may prepay the debenture plus accrued interest at any time before maturity. In addition, as further inducement for loaning the Company the funds, the Company granted the lender 300,000 and 600,000 warrants at $337.50 and $472.50 per share (after restatement for 1 for -1,350- reverse stock split), respectively. As a result, the Company allocated fair market value (“FMV”) to both the BCF and to the warrants, or $206,832, which was recorded as a discount against the debenture. The Company accreted the discount to the convertible debenture through maturity and will accrue interest expense until paid in full or converted. Before discount, the Company determined the FMV of the warrants as $45,000 using the Black-Scholes valuation model.

(2) The Company borrowed $10,000 in exchange for a convertible debenture. The lender at their option may convert all or part of the note plus accrued interest into common stock at a price of thirty percent (30%) discount as determined from the average four (4) highest closing bid prices over the preceding five (5) trading days. The Company valued the BCF of the convertible debenture at $4,286, which was accreted to interest expense through August 2013, the initial maturity date.

(3) The Company entered into three new debenture agreements upon sale or assignment by the original lender. Because the stated terms of the new debenture agreement and principal amounts were significantly different from the original debenture, including analysis of the value of the beneficial conversion feature at the assignment or purchase date, the transactions are treated as extinguishment of the old debentures and recorded as new for accounting purposes.

The conversion price under the debentures is $0.37125 and the lender may convert at any time until the debenture plus accrued interest is paid in full. Various other fees and penalties apply if payments or conversions are not done timely by the Company. The lender will be limited to maximum conversion of 4.99% of the outstanding Common Stock of the Company at any one time.