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Debt
3 Months Ended
Dec. 31, 2012
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]

NOTE 7 - CONVERTIBLE DEBENTURES 

 

During the year ended September 30, 2010, the Company issued, pursuant to a securities purchase agreement, 10% convertible debentures with a face value of $1,500,000.  The first tranche of the total financing, with a face value of $900,000, was issued during the first quarter ended December 31, 2009.  In April 2010, additional debentures with a face value of $600,000 were issued.  All of the debentures had a two year maturity and were issued with attached common stock purchase warrants.  The effective interest rate on the debentures was, and is, 10% per annum.  The debentures were secured by all assets of the Company except those specifically excluded in the agreement which include all Kansas properties and related assets.

 

During the year ended September 30, 2011, the Company entered into a Securities Purchase Agreement with certain institutional investors to purchase $500,000 of Secured Convertible Debentures.  The debentures provide for interest to be paid quarterly, at the rate of 10% per annum, and are due two years from the issuance date.  The debentures are secured by all assets of the Company except those specifically excluded in the agreement which include all Kansas properties and related assets.

 

The debentures are convertible at any time after the original issue date into a number of shares of the registrant’s common stock, determined by dividing the amount to be converted by an initial conversion price of $0.18 per share.  In addition to the debentures the purchasers were issued an aggregate of 2,833,113 common share purchase warrants, each having a term of 42 months, expiring April of 2014, and giving the purchasers the right to purchase the Company’s common shares at an initial exercise price of $0.18 per share. Subsequent to the initial issue date, the initial conversion price of $0.18 per share was amended to $0.12 per share based on provisions in the agreements related to equity issuances and issuance of additional convertible debentures during the year ended September 30, 2011.

 

The modified conversion price of $0.12 per share was amended on or about January 9, 2012, to $0.05 per share based on provisions in the agreements related to equity issuances of additional convertible shares, 

 

The debentures all contain anti-dilution provisions which call for the debt conversion and warrant exercise prices be reduced based on future issues of debt or equity with more favorable provisions.  Management has determined that these provisions cause the conversion options and warrants to require derivative liability accounting.  As such, management has valued at fair value at the date of issuance and bifurcated from the host instruments.  See Note 8.

 

Based upon the fair values as of the original agreement dates of the December 2009 and April 2010 debentures, $1,500,000 was allocated to the common stock purchase warrants and the conversion features resulting in a discount on the debt.  Giving effect to the amortization of the discount and the debenture currently being in default, the discount was fully amortized during the year ended September 30, 2012. 

 

Based upon the fair values as of the original agreement dates of the October 2010 debentures, $500,000 was allocated to the common stock purchase warrants and the conversion features resulting in a discount on the debt.  Giving effect to the amortization of the discount and the conversion of $115,000 in principal conversion and the debenture currently being in default, the discount was fully amortized during the year ended September 30, 2012. 

 

In all three cases, the entire face amount of the debt issued was allocated to discount, and was amortized over the respective term of the debt.

 

During the three months ended December 31, 2012 and 2011, holders of the debt elected to convert $nil and $115,000 face amount of the debt into nil and 958,333 shares of common stock, respectively, according to the terms of the agreements.  See Note 9.

 

As of December 31, 2012, the Company is in default of the terms of the convertible debentures as a result of certain provisions of the agreement. The debenture holders may force foreclosure on the North Dakota properties but have not elected to do so.  The December 2009 and April 2010 debentures maturity date of December 14, 2011 has lapsed, causing the default provisions on all debentures including the October 2010 debentures for a total balance of $1,164,000 as of December 31, 2012 and September 30, 2012.    Management reclassified the outstanding balance of all debentures to current liabilities as of December 31, 2012 and September 30, 2012.