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NOTES AND CONVERTIBLE NOTES PAYABLE, AND NOTES PAYABLE RELATED PARTIES, NET OF DISCOUNTS AND PREMIUMS
 3 Months Ended
Mar. 31, 2013
Notes to Financial Statements  
Note 4. NOTES AND CONVERTIBLE NOTES PAYABLE, AND NOTES PAYABLE RELATED PARTIES, NET OF DISCOUNTS AND PREMIUMS

Notes and convertible notes payable, net of discounts and premiums, all classified as current at March 31, 2013 and December 31, 2012, consists of the following:

 

Notes and convertible                  
notes, net of   March 31, 2013     December 31, 2012  
discounts                     Principal,                       Principal,  
          Unamortized     Put     net of           Unamortized     Put     net of  
    Principal     Discount     Premium     Discounts     Principal     Discount     Premium     Discounts  
Gary Kline (1) (2)   $ 56,000     $ -     $ -     $ 56,000     $ 56,000     $ -     $ -     $ 56,000  
Gary Kline (1)     55,000       -       -       55,000       55,000       -       -       55,000  
Gary Kline (1)     75,000       -       -       75,000       75,000       -       -       75,000  
Gary Kline (1)     23,500       -       -       23,500       23,500       -       -       23,500  
James E. Pumphrey (1)     25,883       -       -       25,883       25,883       -       -       25,883  
Evolution Capital, LLC (1) (2) (3)     25,000       -       -       25,000       25,000       -       -       25,000  
Evolution Capital, LLC (1) (2)     75,000       -       -       75,000       75,000       -       -       75,000  
Evolution Capital, LLC (1)     22,750       -       -       22,750       -       -       -       -  
Evolution Capital, LLC (1)     20,255       -       -       20,255       -       -       -       -  
Evolution Capital, LLC (1)     36,580       -       -       36,580       -       -       -       -  
Evolution Capital, LLC (1)     12,990       -       -       12,990       -       -       -       -  
Marina Development, LLC (1) (2)     -       -       -       -       19,350       -       -       19,350  
Keith Sazer (1) (2)     -       -       -       -       5,250       -       -       5,250  
Hanson Capital, LLC (1) (2)     100,000       -       -       100,000       100,000       -       -       100,000  
Asher Enterprises, Inc. (2)     37,500       (4,525 )     27,155       60,130       37,500       (18,103 )     27,155       46,552  
Asher Enterprises, Inc. (2)     53,000       (19,189 )     38,379       72,190       53,000       (38,379 )     38,379       53,000  
Asher Enterprises, Inc. (2)     32,500       (15,689 )     23,534       40,345       -       -       -       -  
KAJ Capital, LLC (1) (2)     10,000       -       -       10,000       25,000       -       -       25,000  
Robert Salie - Line of Credit (1) (2)     400,000       (2,805 )     -       397,195       400,000       (2,805 )     -       397,195  
Salie Family Limited Partnership (1) (2)     50,000       -       -       50,000       50,000       -       -       50,000  
Transfer Online, Inc. (1)     15,400       -       -       15,400       15,400       -       -       15,400  
Transfer Online, Inc. (1)     25,000       -       -       25,000       25,000       -       -       25,000  
Transfer Online, Inc. (1)     35,000       -       -       35,000       35,000       -       -       35,000  
Transfer Online, Inc. (1)     45,000       -       -       45,000       45,000       -       -       45,000  
Transfer Online, Inc. (1)     55,000       -       -       55,000       55,000       -       -       55,000  
Douglas Pinard (1)     20,000       -       -       20,000       20,000       -       -       20,000  
Richard St. Cyr (1)     17,000       -       -       17,000       17,000       -       -       17,000  
Susan Jones (1)     58,333       -       -       58,333       58,333       -       -       58,333  
SGI Group, LLC (1) (2)     -       -       -       -       6,419       -       -       6,419  
Ventana Capital Partners, Inc. (1)     20,000       -       -       20,000       20,000       -       -       20,000  
Star City Capital, LLC (1) (2)     -       -       -       -       20,000       -       -       20,000  
Southridge Partners II, LP (1) (2)     43,550       -       -       43,550       155,525       -       -       155,525  
Southridge Partners II, LP (1) (2)     8,525       -       -       8,525       45,000       -       -       45,000  
Southridge Partners II, LP (1) (2)     40,900       -       -       40,900       55,300       -       -       55,300  
WHC Capital, LLC (1) (2)     -       -       -       -       24,909       -       -       24,909  
Southridge Partners II, LP (1) (2)     -       -       -       -       11,375       -       -       11,375  
Southridge Partners II, LP (2)     -       -       -       -       25,000       -       -       25,000  
Total   $ 1,494,666     $ (42,208 )   $ 89,068     $ 1,541,526     $ 1,659,744     $ (59,287 )   $ 65,534     $ 1,665,991  

_________

(1) In default.

(2) Convertible.

(3) Acquired from Benchmark Capital, LLC

  

Notes, convertible notes, and  lines of credit payable to                    
related parties, net of                                      
discounts   March 31, 2013     December 31, 2012  
                      Principal,                       Principal,  
          Unamortized     Put     net of           Unamortized     Put     net of  
    Principal     Discount     Premium     Discounts     Principal     Discount     Premium     Discounts  
Bruce Harmon (1)   $ 157,260     $ -     $ -     $ 157,260     $ 157,260     $ -     $ -     $ 157,260  
Bruce Harmon (1)     10,000       -       -       10,000       10,000       -       -       10,000  
Bruce Harmon (1)     52,010       -       -       52,010       10,000       -       -       10,000  
Bruce Harmon (1)     15,000       -       -       15,000       10,000       -       -       10,000  
Bruce Harmon (1)     15,000       -       -       15,000       10,000       -       -       10,000  
Lakeport Business Services, Inc. (1)     47,235       -       -       47,235       47,235       -       -       47,235  
Lakeport Business Services, Inc. - Line of Credit (1) (2)     213,095       -       -       213,095       213,095       -       -       213,095  
Total   $ 509,600     $ -     $ -     $ 509,600     $ 457,590     $ -     $ -     $ 457,590  

_________

(1) In default.

(2) Convertible.

 

On March 12, 2009, the Company secured a note for $50,703 from Premier Bank Lending Center. The note matures on March 12, 2010, bears interest at a rate of 6%, and has monthly interest only payments. On March 12, 2010, Premier Bank Lending Center renewed the note for $50,703 to the Company. The note matures on September 12, 2010, bears interest at a rate of 6.50% and has monthly interest only payments. James E. Pumphrey, a shareholder of the Company, was a guarantor to the financing. On November 30, 2010, Mr. Pumphrey assumed the note with Premier Bank Lending Center and eLayaway.com, Inc. executed a promissory note with Mr. Pumphrey for $50,535. The note matures on May 30, 2011, bears interest at a rate of 12%, and has monthly interest only payments. On June 1, 2011 the Company and Mr. Pumphrey agreed to an extension of the loan which extended the maturity date until November 30, 2011.  On November 30, 2011, the promissory note was amended and due to the lack of significant funding, the parties agreed to extend the expiration of the loan to March 31, 2013 and to set up payment terms. The Company will make principal payment starting December 15, 2011 with final payment to be made in March 31, 2013. This amendment was treated as a "Trouble Debt Restructuring" in accordance with FASB ASC 470-60. There is no gain or loss on the restructuring of the payables. The remaining principal balance as of March 31, 2013 was $25,883. As of March 31, 2013, this note is in default.

 

On November 2, 2009, the Company secured a note for $15,300 from Lakeport Business Services, Inc. (“Lakeport”), a company owned by Bruce Harmon (“Harmon”), CFO and Chairman of the Company (see Note 10 - Related Parties). The note bears interest at a rate of 12%. The note matured on January 1, 2010. Lakeport has agreed in an addendum to the note to defer interest payments until maturity and extended the maturity date to September 1, 2011. On June 29, 2010, an addendum to the note to add an advance of $5,025 from Lakeport to the Company was added. On October 26, 2011, this balance was converted into Series E preferred stock (see Note 8).

 

On February 10, 2010, the Company entered into a Promissory Note with Hillside Building, LLC, the landlord for the Company’s office space, for $10,000. The amount is related to the required deposit for the office space. The note has a one year term and accrues interest at the rate of 7% per annum. The note was in default as of February 10, 2011. On November 18, 2011, the Company settled the note converting it into common stock of the Company (see Note 8).

 

On April 6, 2010, the Company entered into a Convertible Promissory Note with Gary Kline (“Kline”) for $100,000. The note has a one year term and accrues or pays, at the option of Kline, interest at 12% per annum. The note was transferred to the Parent company after the reverse merger and is convertible at the option of Kline into common stock of the public Parent company at $0.25 per share on or after the maturity date of the loan. On August 9, 2010, the Company executed an addendum to the April 6, 2010 convertible promissory note. The addendum facilitates $65,000 additional working capital for the Company. The addendum also modifies the previous terms and conditions by providing a conversion rate of $0.165 per share.   This modification is considered a debt extinguishment for accounting purposes due to the increase of the fair value of the embedded conversion option on the modification date before the change of the conversion rate and after the rate change. All prior debts and related discounts were removed and the Company recorded a new debt of $165,000. The Company recorded $135,000 as a Debt Discount related to the Beneficial Conversion Feature of the new note which is amortized over the remaining term of the one year note and accordingly, five months of interest of $56,250 were recorded as of December 31, 2010 and another $14,063 through February 8, 2011. On February 8, 2011, the Company modified the $165,000 convertible promissory note by decreasing the conversion price to $0.10 from $0.165. This modification qualifies for treatment as a debt extinguishment for financial accounting purposes. Therefore the $69,545 intrinsic value of the beneficial conversion feature of the old debt on the modification date was charged to additional paid-in capital as of the February 8, 2011 modification date and the new loan was recorded as $165,000 with a beneficial conversion value of $165,000 recorded as a debt discount to be amortized over the remaining term of the note. The full $165,000 discount was amortized as of the maturity date of April 5, 2011. Any remaining discount from the old debt totaling $64,687 was removed and the Company recorded a gain on extinguishment of debt of $4,858 at March 31, 2012. From April, 2011 through September, 2011, Kline sold $165,000 of the Convertible Promissory Note to some investors. Each party, simultaneous with their purchase, converted their investment into common stock for a total of 1,650,000 of common stock. Subsequently, Kline invested $165,000 into the Company under separate addendums to the Convertible Promissory Note. The new loans are due on demand. These additional loans are not treated as modifications under accounting standards. The Company also recorded $150,318 of interest expenses related to the beneficial conversion feature of the new notes. In March 2012, the Company amended the Convertible Promissory Note to change the conversion price from $0.10 for $50,000, and its apportioned accrued interest. The new conversion price is 60% of the lowest conversion bid price of the Company’s common stock during the five days immediately preceding a conversion. On March 29, 2012, Mr. Kline sold $50,000 and its apportioned accrued interest of $6,000 to Southridge Partners II LP. This modification qualifies for treatment as a debt extinguishment for financial accounting purposes therefore the old debt of $50,000 was removed and the new loan was recorded as $56,000 ($50,000 principal and $6,000 accrued interest) with a stock settled debt premium of $34,000. The Company recorded the $34,000 as interest expense because the loan is due on demand. On September 20, 2012, Kline sold $25,000 to SGI Group, LLC and $30,000 to Star City Capital, LLC. On September 20, 2012, the Company amended the Convertible Promissory Note to change the conversion price from $0.10 for $55,000. The new conversion price is 60% of the lowest conversion bid price of the Company’s common stock during the five days immediately preceding a conversion. These modifications qualifies for treatment as a debt extinguishment for financial accounting purposes therefore the old debt of $55,000 was removed and the new loan was recorded as $25,000 and $30,000, respectively with a combined stock settled debt premium of $55,000. The Company recorded the $55,000 as interest expense because the loan is due on demand. On October 22, 2012, Kline sold $50,000 to Southridge. On October 22, 2012, the Company amended the Convertible Promissory Note to change the conversion price from $0.10 for $50,000. The new conversion price is 50% of the lowest conversion bid price of the Company’s common stock during the five days immediately preceding a conversion. These modifications qualifies for treatment as a debt extinguishment for financial accounting purposes therefore the old debt of $50,000 was removed and the new loan was recorded as $50,000 with a stock settled debt premium of $50,000. The Company recorded the $50,000 as interest expense because the loan is due on demand. On October 22, 2012, Kline sold $30,000 to Star City. On October 22, 2012, the Company amended the Convertible Promissory Note to change the conversion price from $0.10 for $30,000. The new conversion price is 50% of the lowest conversion bid price of the Company’s common stock during the five days immediately preceding a conversion. These modifications qualifies for treatment as a debt extinguishment for financial accounting purposes therefore the old debt of $30,000 was removed and the new loan was recorded as $30,000 with a stock settled debt premium of $30,000. The Company recorded the $30,000 as interest expense because the loan is due on demand. On October 22, 2012, Kline sold $5,000 to SGI Group. On October 22, 2012, the Company amended the Convertible Promissory Note to change the conversion price from $0.10 for $5,000. The new conversion price is 50% of the lowest conversion bid price of the Company’s common stock during the five days immediately preceding a conversion. These modifications qualifies for treatment as a debt extinguishment for financial accounting purposes therefore the old debt of $5,000 was removed and the new loan was recorded as $5,000 with a stock settled debt premium of $5,000. The Company recorded the $5,000 as interest expense because the loan is due on demand.

 

On June 18, 2010, the Company issued a promissory note in exchange for cash for $20,000 from Ventana Capital Partners, Inc. (“Ventana”), a related party that was under contract to assist the Company in its reverse merger, investor and public relations, and other pertinent roles. Additionally, the contract obligated Ventana to raise an initial $1,500,000. Ventana, due to its ownership, is a principal stockholder of the Company. The note bears interest at a rate of 1% per month. The note matures after an additional $100,000 in funding is raised. Ventana, and its principal, Ralph Amato, required that Douglas Salie, the former CEO and Chairman of the Company, use 500,000 of his personal restricted common stock in the Company as collateral at a conversion rate of $0.04 per share. In August 2010 this note was amended to increase the funding amount required for repayments to $200,000 from $100,000. This note is in default.

 

On July 6, 2010, the Company issued a Convertible Promissory Note with Dr. Robert Salie (“Dr. Salie”), the father of the Company’s former CEO, for $25,000. The principal is due in one year or upon the receipt of $150,000 in common stock sales, whichever comes first. Interest accrues at the rate of 12%. The note is convertible at the option of Dr. Salie into common stock at $0.25 per share on or after the maturity date of the loan. The Company recorded $13,340 as a Debt Discount relating to the Beneficial Conversion Feature and $11,660 as a Debt Discount related to the 50,000 warrants and an exercise price of $.25 per share that were issued as a loan fee with this debt. The Company amortized $12,500 to interest expense through December 31, 2010 based on the one year term of the note. On October 29, 2010, as a condition of the Revolving Credit Agreement with Dr. Salie and due to the lack of performance of the Company to date, the conversion price of this note was modified to be the 10 day volume weighted average price (“VWAP”) of the Company as of January 10, 2011 or $0.10, whichever is greater. On January 10, 2011, the conversion rate was, based on the formula, set at $0.10. This modification did not qualify as a debt extinguishment. The Company recorded additional debt discount of $2,245 which represents the increase in fair value of the embedded conversion option resulting from the modification. On February 12, 2011, this Note was purchased by a third party. Simultaneous with the acquisition of the Note, this Note was converted to 250,000 shares of common stock (see Note 10). Upon conversion of the note, the Company amortized the debt discount of $2,245 to interest expense.

 

On September 22, 2010, the Company issued a Promissory Note with the Salie Family Limited Partnership, which is controlled by Dr. Salie, for $50,000. The principal is due in one year or upon the receipt by the Company of $450,000 in common stock sales, whichever comes first. Interest accrues at the rate of 12%. As a condition of the financing, the Company issued 100,000 warrants in 2010 and, 25,000, 25,000, 25,000, 75,000, and 100,000 warrants in 2011 for common stock at the exercise price of $0.33, $0.25, $0.11, $0.11, $0.07, and $0.07 per share, respectively. The warrants have a five year life. The Company recorded $18,394 in 2010 and $23,500 in 2011 for the relative fair value of the warrants as a Debt Discount which was to be amortized over the term of the one year note. The values in 2011 were based upon Black-Scholes computations with the following ranges of assumptions: Volatility 135% to 143%, interest rate 0.445% to 0.86%, expected term of 5 years and stock prices from $0.06 to $$0.13. On October 29, 2010, as a condition of the Revolving Credit Agreement with Dr. Salie and due to the lack of performance by the Company, this note was amended to add a conversion feature at a price based on the 10 day VWAP of the Company as of January 10, 2011 or $0.10, whichever is greater.   On January 10, 2011, the conversion rate was, based on the formula, set at $0.10.   The modification of the note qualified as a debt extinguishment for accounting purposes due to the addition of the conversion feature and accordingly all remaining warrant debt discount on the modification date was expensed. This note is in default. In January 2013, Dr. Salie filed a lawsuit regarding this note (see Note 6).

 

On October 29, 2010, the Company executed a Revolving Credit Agreement ("LOC") with Dr. Salie in the amount of $250,000. This LOC was increased to $500,000 on February 9, 2011. The agreement, as extended in November 2011, expires on October 28, 2012 and bears interest at the rate of 12% which accrues until maturity. As of December 31, 2012, the balance was $400,000. This LOC contains a conversion provision whereby the conversion price is $0.10 which was set on January 10, 2011. At that date the exercise price exceeded the quoted stock price and therefore there was no beneficial conversion value to record. On September 12, 2011, a portion of this LOC, $150,000, was purchased by a third party. Simultaneous with the acquisition of this portion of the LOC, that portion was converted to 1,500,000 shares of common stock (see Note 10 and 12). Dr. Salie loaned another $150,000 under the LOC in September 2011. The Company recorded $60,000 as a debt discount related to the beneficial conversion feature of the additional $150,000, which is amortized over the remaining term of the LOC. This note is in default. In January 2013, Dr. Salie filed a lawsuit regarding this note (see Note 6).

 

On December 27, 2010, the Company executed a Revolving Credit Agreement ("LOC") with Lakeport in the amount of $100,000. The agreement expires on September 30, 2012 and bears interest at the rate of 12% which accrues until maturity. As of September 30, 2012 and December 31, 2011, the balance was $213,095 and $69,014, respectively. On October 26, 2011, $25,000 of this balance was converted into Series E preferred stock (see Note 12). This LOC contained a contingent conversion provision whereby the conversion price will be determined at an undetermined future date and at that time the LOC will become convertible. On June 7, 2012, a conversion price of $0.015 was established which was the current trading price of the Company’s stock. On October 5, 2012, the conversion price was modified to be the lesser of $0.015 or the five day VWAP. Additionally, the credit line was increased to $300,000. The modification of the LOC qualified as a debt extinguishment for accounting purposes. However, the conversion price equals the fair value of common stock at June 7, 2012, therefore the Company did not record any discount related to beneficial conversion feature. This note is in default. On October 5, 2012, the Company agreed, due to the LOC being in default, with Lakeport to amend the conversion feature to be the lesser of $0.015 or the five day VWAP. As of March 31, 2013, the balance is $213,095.

 

On June 29, 2011, the Company executed a Revolving Credit Agreement ("LOC") with Transfer Online, Inc. (“TOL”) in the amount of $500,000. The agreement expires on December 29, 2011 and bears interest at the rate of 12% which accrues until maturity. As of September 30, 2011, the balance was $300,000. This LOC contains a conversion provision whereby the conversion price is $0.10. The Company recorded $210,000 as a Debt Discount related to the Beneficial Conversion Feature of the note. On August 17, 2011, the Company repaid $150,000 of the note. The Company amortized 1.5 months of the debt discount of $52,500 to interest expense, half of the remaining discount or $78,750 was removed from the books and the $90,000 intrinsic value of the $150,000 portion of the loan paid was charged to additional paid-in capital. The Company recognized a gain on the extinguishment of debt of $11,250. On October 26, 2011, the Company executed an addendum modifying the conversion feature to the lesser of $0.09 or 70% of the closing price prior to conversion. As the October 26, 2011 modification caused the embedded conversion option to be treated as a bifurcated derivatives, this modification is not considered a debt extinguishment for accounting purposes. Accordingly the $108,695 fair value of the embedded conversion option on the modification date was recorded as additional effective interest to debt discount and as a derivative liability. The derivative liability was adjusted to $64,286 as of September 30, 2012. All discounts were amortized to interest expense as of the debt maturity date of December 29, 2011. This note is in default. Transfer Online, Inc. is owned by Lori Livingston, the former CTO of the Company. On September 24, 2012, the Company modified the terms of the new note. It is convertible at any time into the Company’s common stock at a 50% discount to the future stock price, as defined in the amended note. On September 24, 2012, TOL sold $55,000 of this note to Southridge. On December 4, 2012, TOL sold $25,000 of this note to Marina Development, LLC. On November 20, 2012, TOL sold $6,800 principal and $8,619 accrued interest of this note to SGI Group, LLC. On December 13, 2012, TOL sold $35,000 of this note to WHC Capital, LLC. On December 28, 2012, TOL sold $45,000 of this note to Southridge. As of December 28, 2012, this note was completely purchased and assigned to third parties.

 

On October 26, 2011, the Company entered into a six month convertible note with Evolution Capital, LLC (“Evolution”), in the amount of $50,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.09 or 70% of the closing price prior to conversion. There was a $5,000 fee to the lender for legal expenses and related expenses for the closing of the note which was recorded as debt discounts and is being amortized over the debt term. Evolution was issued 55,556 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.09. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8). On August 27, 2012, Evolution converted $25,000 of this note into 3,246,753 shares of common stock at the discounted rate of $0.0077 whereas the closing price on the previous day was $0.011. The Company recognized a loss on conversion of $10,714. As of March 31, 2013, this note is in default.

 

On October 26, 2011, the Company entered into a six month convertible note with Benchmark Capital, LLC (“Benchmark”), in the amount of $50,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.09 or 70% of the closing price prior to conversion. There was a $5,000 fee to the lender for legal expenses and related expenses for the closing of the note which was recorded as debt discounts and is being amortized over the debt term. Benchmark was issued 55,556 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.09. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8). On April 23, 2012, this note was purchased and assigned to Evolution. On November 30, 2012, $50,000 of principal and $10,126 of accrued interest was purchased and assigned to Southridge. As of November 30, 2012, this note was completely purchased and assigned to third parties.

 

On November 11, 2011, the Company entered into a six month convertible note with Benchmark, in the amount of $50,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.09 or 70% of the closing price prior to conversion. There was a $5,000 fee to the lender for legal expenses and related expenses for the closing of the note which was recorded as debt discounts and is being amortized over the debt term. Benchmark was issued 55,556 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.09. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8). On April 23, 2012, this note was purchased and assigned to Evolution.

 

On November 15, 2011, the Company entered into a six month convertible note with Reserve Capital, LLC (“Reserve”), in the amount of $50,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.09 or 70% of the closing price prior to conversion. There was a $5,000 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue cost and is being amortized over the debt term. A third party was issued 55,556 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.09. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8). As of September 30, 2012, this note is in default. On December 4, 2012, Reserve sold $50,000 of principal and $5,300 of accrued interest to Southridge. On December 4, 2012, the Company amended the Convertible Promissory Note to change the conversion price from a 30% discount to a 50% discount. The new conversion price is 50% of the lowest conversion bid price of the Company’s common stock during the five days immediately preceding a conversion. These modifications qualifies for treatment as a debt extinguishment for financial accounting purposes therefore the old debt of $50,000 was removed and the new loan was recorded as $50,000 with a stock settled debt premium of $50,000. The Company recorded the $50,000 as interest expense because the loan is due on demand.

 

On December 1, 2011, the Company entered into a six month convertible note with Evolution, in the amount of $100,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.07 or 70% of the closing price prior to conversion. There was a $10,000 fee to the lender for legal expenses and related expenses for the closing of the note which was recorded as debt discount and is being amortized over the debt term. Evolution was issued 111,112 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.07. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8). On November 8, 2012, Southridge acquired $50,000 of principal of this note. On November 30, 2011, $50,000 of principal and $10,273 of accrued interest was purchased and assigned to Southridge. As of November 30, 2012, this note had been completely purchased and assigned to third parties.

 

On December 12, 2011, the Company entered into a six month convertible note with Equity Trust Company Custodian FBO Curt Hansen beneficiary DCD Ann Hansen IRA (“Hansen”), in the amount of $100,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.07 or 70% of the closing price prior to conversion. There was a $10,000 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue cost to be amortized over the debt term. Evolution was issued 111,112 shares of restricted common stock in lieu of the fees. The shares were issued using the closing price of the previous day of $0.07. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value (see Note 8). This note is in default.

 

On January 30, 2012, the Company entered into a six month convertible note with KAJ Capital, LLC (“KAJ”), in the amount of $25,000. The interest, which accrues, is at a rate of 12% per annum. The conversion feature is the lesser of $0.036 or 70% of the closing price prior to conversion. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The third party was issued 69,444 shares of restricted common stock in lieu of the fees. The shares were issued using the average of the closing price of the previous two days of $0.03 and $0.042. The convertible note contains an embedded derivative to be bifurcated from the note and reported as a liability at fair value. On March 28, 2013, KAJ converted $15,000 of the note into 107,142,857 shares of common stock (see Note 8) at a 30% discount, $0.00014, at a loss on conversion of $92,143. The shares were recorded as issuable as of March 31, 2013. This note is in default. As of March 31, 2013, the note has a principal balance of $10,000.

 

On February 1, 2012, the Company entered into two convertible promissory notes as part of the acquisition of CSP (see Note 2). The notes, each for $57,000, were issued to Douglas Pinard and Richard St. Cyr. The notes bear interest at the rate of 6% per annum with interest being accrued. The conversion rate is at $0.60 per share. On February 1, 2012, the conversion price was greater than the value of common stock, therefore the Company did not record any discount related to the beneficial conversion feature. The notes expire on August 1, 2012. As of the date of this report, both notes are in default. On September 30, 2012, as part of an agreement dated October 1, 2012, $40,000 of the note to Mr. St. Cyr was retroactively extinguished. On October 17, 2012, as part of a settlement agreement, the $57,000 note to Mr. Pinard was extinguished.

 

On February 1, 2012, the Company, as part of the acquisition of CSP, assumed the liability of a note payable to Douglas Pinard in the amount of $6,800. The date of the note was January 4, 2012. The note bears interest at the rate of 6% per annum with interest payable quarterly. The note matures on January 20, 2014. On October 17, 2012, as part of a settlement agreement, the $6,800 note to Mr. Pinard and its accrued interest was extinguished.

 

On February 2, 2012, the Company entered into a convertible note with Asher Enterprises (“Asher”), in the amount of $37,500. The note matures on November 6, 2012 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue cost to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $64,655. The Company therefore is accreting a premium of $27,155 into interest expense over the 180 day period to the first conversion date of the note. On September 6, 2012, Asher converted $10,000 of the principal of this note into 1,724,138 shares of common stock. The Company recognized a gain on extinguishment of $6,858. On September 20, 2012, the Company paid a settlement price of $42,500 to Asher.

 

On March 28, 2012, the Company entered into a convertible promissory note with Kline in the amount of $56,000. The note is due on September 28, 2012. The interest, which accrues, is a rate 12% per annum, and is convertible. The note is convertible at the option of the holder at $0.015 per share on or the later of the maturity date and the date of payment of the default amount. The Company recorded $56,000 as debt discount; $50,000 is related to the Beneficial Conversion Feature of the loan and $6,000 related to the loan fee.

 

On March 30, 2012, the Company entered into a convertible promissory note with Southridge in the amount of $25,000, in exchange for legal services in regards to the Equity Purchase Agreement (see Note 7 and 12). The note is due on April 1, 2013 and can be converted at the option of the holder at any time after six months from the date of the note. The interest, which accrues, is at a rate of 8% per annum, and is convertible. The conversion feature is at the current market price, defined as the average of the two lowest closing bid prices, with a 30% discount. The note is considered a stock settlement debt since any future stock issued upon conversion will have a fair market value of $35,714. The Company therefore accreted a premium of $10,714 into interest expense over the six months to the first conversion date of the note. On February 26, 2013, Southridge sold the note principal of $25,000 to Momoma Capital, LLC (“Momoma Capital”).

 

On April 1, 2012, the Company entered into a convertible note with Asher in the amount of $32,500. The note matures on January 2, 2013 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $56,034. The Company therefore is accreting a premium of $23,534 into interest expense over the 180 day period to the first conversion date of the note. On October 1, 2012, the Company paid a settlement price of $48,500 to Asher.

 

On April 2, 2012, Southridge converted $10,000 of their $56,000 convertible note into 694,444 shares of common stock. On April 17, 2012, in conjunction with this conversion, as the closing trading price on the clearing date of the 694,444 shares of common stock was less than the closing trading price on the date of conversion, the Company was required to issue an addition 280,214 shares of common stock to Southridge. On May 16, 2012, Southridge converted $46,000 of the note into 6,666,667 shares at a 50% discount, $0.0069. As of May 16, 2012, the note was fully converted.

 

On June 7, 2012, the Company entered into a convertible note with Asher in the amount of $32,500. The note matures on March 11, 2013 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $56,034. The Company therefore is accreting a premium of $23,534 into interest expense over the 180 day period to the first conversion date of the note. On December 17, 2012, Asher converted $9,000 of the note into 9,473,684 shares of common stock at a conversion price of $0.00095. The Company recorded a loss on conversion of $474. On December 19, 2012, Asher converted $8,600 of the note into 9,247,312 shares of common stock at a conversion price of $0.00093. The Company recorded a loss on conversion of $647. On December 20, 2012, Asher converted $8,600 of the note into 9,450,549 shares of common stock at a conversion price of $0.00091. The Company recorded a loss on conversion of $851. On December 24, 2012, Asher converted $6,000 of the note into 8,219,178 shares of common stock at a conversion price of $0.00073. The Company recorded a loss on conversion of $2,219. On December 27, 2012, Asher converted $300 of principal and $1,300 of accrued interest of the note into 2,191,781 shares of common stock at a conversion price of $0.00073. The Company recorded a loss on conversion of $592. As of December 27, 2012, the note was fully converted.

 

On September 4, 2012, the Company entered into a note with Lakeport in the amount of $47,235. The note matures on October 1, 2012 and accrues interest at the rate of 12% per annum. This note is in default.

 

On September 24, 2012, Southridge purchased a portion, $55,000, of the TOL note dated June 29, 2011. On October 18, 2012, Southridge converted $5,480 of the note into 8,430,769 shares of common stock at a 50% discount, $0.00065, at a loss of $2,951 on the conversion. On November 5, 2012, Southridge converted $6,325 of the note into 8,433,333 shares of common stock at a 50% discount, $0.00075, at a loss of $2,108 on the conversion. On November 9, 2012, Southridge converted $12,190 of the note into 16,253,333 shares of common stock at a 50% discount, $0.00075, at a loss of $4,063 on the conversion. On November 15, 2012, Southridge converted $5,685 of the note into 16,242,857 shares of common stock at a 50% discount, $0.00035, at a loss of $10,558 on the conversion. On November 21, 2012, Southridge converted $8,375 of the note into 23,928,571 shares of common stock at a 50% discount, $0.00035, at a loss of $15,554 on the conversion. On November 30, 2012, Southridge converted $11,260 of the note into 32,171,429 shares of common stock at a 50% discount, $0.00035, at a loss of $20,911 on the conversion. On December 5, 2012, Southridge converted $5,685 of the note into 4,373,077 shares of common stock at a 50% discount, $0.00013, at a gain of $132,951 on the conversion of $1,312. On December 11, 2012, under the reset clause of the note, Southridge was issued an additional 1,311,923 shares of common stock at a loss of $1,312. The note was fully converted as of December 11, 2012.

 

On September 27, 2012, SGI Group, LLC (“SGI Group”) converted $6,100 of principal of its $25,000 note into 4,206,896 shares of common stock at the discounted conversion price of $0.00145 with a loss on conversion of $1,893. On October 12, 2012, due to the reset clause in the note, an additional 2,969,574 shares of common stock were issued. The Company recognized a loss of $2,970 for the additional issuance. On October 22, 2012, SGI Group $2,600 of principal and $18 of accrued interest of the note into 4,028,400 shares of common stock at the discounted conversion price of $0.00065 with a loss on conversion of $1,410. On November 5, 2012, SGI Group $6,300 of principal and $85 of accrued interest of the note into 8,513,160 shares of common stock at the discounted conversion price of $0.00075 with a loss on conversion of $2,128. On November 16, 2012, SGI Group $6,500 of principal and $111 of accrued interest of the note into 18,889,371 shares of common stock at the discounted conversion price of $0.00035 with a loss on conversion of $12,278. On November 23, 2012, SGI Group $3,500 of principal and $68 of accrued interest of the note into 10,193,857 shares of common stock at the discounted conversion price of $0.00035 with a loss on conversion of $6,626. As of November 23, 2012, the note was fully converted.

 

On September 27, 2012, Star City Capital, LLC (“Star City”) converted $12,200 of its $30,000 note into 8,413,793 shares of common stock at the discounted conversion price of $0.00145. On October 12, 2012, due to the reset clause in the note, an additional 5,939,148 shares of common stock were issued. The Company recognized a loss of $5,939 for the additional issuance. On November 5, 2012, Star City converted $6,300 of principal and $85 of accrued interest of its note into 8,513,180 shares of common stock at the discounted conversion price of $0.00075. On November 16, 2012, Star City converted $6,500 of principal and $85 of accrued interest of its note into 18,889,371 shares of common stock at the discounted conversion price of $0.00035. On December 5, 2012, Star City converted $5,000 of principal and $120 of accrued interest of its note into 3,938,246 shares of common stock at the discounted conversion price of $0.0013 at a gain on conversion of $1,182. On December 20, 2012, due to the reset clause in the note, an additional 3,754,061 shares of common stock were to be issued. They were not issued until January 2013. The Company recognized a loss of $3,754 for the additional issuance. As of December 20, 2012, the note was fully converted.

 

On September 28, 2012, the Company entered into a note with Kline in the amount of $55,000. The note matures on October 10, 2012 and accrues interest at the rate of 12% per annum. This note is in default.

 

On September 28, 2012, the Company entered into a note with TOL in the amount of $55,000. The note matures on October 10, 2012 and accrues interest at the rate of 12% per annum. This note is in default.

 

On September 30, 2012, the Company entered into a note with Susan Jones, a former officer of the Company. The Company had accrued compensation of $58,333 which was converted into a note payable. The note matures on October 15, 2012 and accrued interest at the rate of 2% per annum. This note is in default.

 

On September 30, 2012, the Company entered into a note with Harmon, an officer of the Company. As part of an agreement whereas Harmon provided his personal guarantee to a liability of the Company, the Company purchased back 2,060,276 shares of Series E preferred stock for the original conversion value of $157,260 and converted the liability into a note which matures on October 15, 2012 and accrues interest at the rate of 2% per annum. The Company recognized compensation expense of $150,461 in this transaction as the shares were valued at $6,799. This note is in default.

 

On October 22, 2012, Southridge purchased $50,000 of the Kline note. On December 5, 2012, Southridge converted $36,150 of the note into 27,807,692 shares of common stock at a 50% discount, $0.0013, at a gain of $8,342 on the conversion. On December 11, 2012, under the reset clause of the note, Southridge was issued an additional 8,342,308 shares of common stock at a loss of $8,342. On December 11, 2012, Southridge converted $13,850 of the note into 13,850,000 shares of common stock at a 50% discount, $0.001. The note was fully converted as of December 11, 2012.

 

On October 22, 2012, SGI Group purchased $5,000 of the Kline note. On November 23, 2012, SGI Group converted $3,000 of principal and $33 of accrued interest of the note into 8,664,771 shares of common stock at a 50% discount, $0.00035, at a loss on conversion of $5,632 on the conversion. On December 11, 2012, Southridge converted $2,000 of principal and $34 of accrued interest of the note into 3,389,433 shares of common stock at a 50% discount, $0.0006. The note was fully converted as of December 11, 2012.

 

On October 22, 2012, Star City purchased $20,000 of the Kline note. On February 11, 2013, Star City converted $20,000 of principal and $744 of accrued interest of the note into 82,974,160 shares of common stock (see Note 8) at a 50% discount, $0.00025, at a loss on conversion of $62,231. The balance as of March 31, 2013 is $0.

 

On October 23, 2012, the Company entered into a note with Kline for $75,000. The note has an interest rate of 12% and matured on October 31, 2012. This note is in default.

 

On October 24, 2012, the Company entered into a convertible note with Asher in the amount of $37,500. The note matures on July 26, 2013 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $64,655. The Company therefore is accreting a premium of $27,155 into interest expense over the 180 day period to the first conversion date of the note.

 

On November 7, 2012, WHC purchased and was assigned $25,000 of the Evolution note dated October 26, 2011. On November 9, 2012, WHC converted $5,465 of the note into 7,286,000 shares of common stock at a 50% discount, $0.00075, at a loss on conversion of $1,822 on the conversion. On November 26, 2012, WHC converted $6,982 of the note into 12,695,000 shares of common stock at a 50% discount, $0.00055, at a loss on conversion of $5,713 on the conversion. On December 11, 2012, WHC converted $12,553 of principal and $182 of accrued interest of the note into 12,526,279 shares of common stock at a 50% discount, $0.00075, at a gain on conversion of $209 on the conversion. As of December 11, 2012, the note was fully converted.

 

On November 8, 2012, Southridge purchased $50,000 of the Evolution note dated December 1, 2011. On December 5, 2012, Southridge converted $19,300 of the note into 32,166,667 shares of common stock at a 50% discount, $0.0006, at a loss on conversion of $12,867 on the conversion. On December 11, 2012, Southridge converted $19,325 of the note into 32,208,333 shares of common stock at a 50% discount, $0.0006, at a loss on conversion of $12,883 on the conversion. On January 3, 2013, Southridge converted $11,375 of the note into 18,958,333 shares of common stock (see Note 8) at a 50% discount, $0.0006. A loss on conversion of $15,167 was recognized. On January 9, 2013, under the reset clause of the note, Southridge was issued an additional 3,791,667 shares of common stock (see Note 8) at a loss of $3,792. The note was fully converted as of March 31, 2013.

 

On November 13, 2012, the Company entered into a note with Evolution for $75,000. The note has an interest rate of 12% and matured on November 23, 2012. This note is in default.

 

On November 15, 2012, the Company entered into a note with Harmon for $10,000 related to accrued payroll. The note has an interest rate of 12% and matured on November 25, 2012. This note is in default.

 

On November 20, 2012, SGI Group purchased $15,419 of the TOL note dated June 28, 2011. On December 12, 2012, SGI Group converted $9,000 of principal and $68 of accrued interest of the note into 15,113,467 shares of common stock at a 50% discount, $0.0006, at a loss on conversion of $6,045 on the conversion. On February 7, 2013, SGI Group converted $6,419 of principal and $169 of accrued interest of the note into 26,351,200 shares of common stock (see Note 8) at a 50% discount, $0.00025, at a loss on conversion of $19,763. The balance as of March 31, 2013 is $0.

 

On November 20, 2012, Mauriello purchased $15,000 of the Kline note dated April 6, 2010. On November 29, 2012, Mauriello converted $6,500 of principal and $4 of accrued interest of the note into 18,583,657 shares of common stock (see Note 12) at a 50% discount, $0.00035, at a loss on conversion of $12,079 on the conversion. On December 13, 2012, Mauriello converted $8,500 of principal and $67 of accrued interest of the note into 14,278,267 shares of common stock at a 50% discount, $0.0006, at a loss on conversion of $5,711 on the conversion.

 

On February 11, 2013, under the reset clause of the note, Mauriello was issued an additional 14,278,266 shares of common stock (see Note 8) at a loss of $14,278. As of March 31, 2013, the note was fully converted.

 

On November 20, 2012, Sazer purchased $8,500 of the Kline note dated April 6, 2010. On November 23, 2012, Sazer converted $3,250 of principal and $4 of accrued interest of the note into 9,297,943 shares of common stock at a 50% discount, $0.00035, at a loss on conversion of $6,044 on the conversion. On February 11, 2013, Sazer converted $5,250 of principal and $145 of accrued interest of the note into 10,790,640 shares of common stock (see Note 8) at a 50% discount, $0.00025, at a loss on conversion of $5,395. As of March 31, 2013, the balance of the note was $0.

 

On November 26, 2012, the Company entered into a note with Kline for $23,500. The note has an interest rate of 12% and matured on November 30, 2012. This note is in default.

 

On November 26, 2012, the Company entered into a note with TOL for $15,400. The note has an interest rate of 12% and matured on December 3, 2012. This note is in default.

 

On November 30, 2012, Southridge purchased and was assigned $60,126, $35,126, and $60,273 of principal and accrued interest from the Benchmark note dated October 26, 2011, the Evolution note dated October 26, 2011, and the Evolution note dated December 1, 2011, respectively, for a total of $155,525. On January 3, 2013, Southridge converted $22,750 of the principal into 37,916,667 shares of common stock (see Note 8) at a 50% discount, $0.006. A loss on conversion of $15,167 was recognized. On January 28, 2013, under the reset clause of the note, Southridge was issued an additional 5,183,333 shares of common stock (see Note 8) at a loss of $5,183. On February 20, 2013, Southridge converted $20,255 of the principal into 81,008,219 shares of common stock (see Note 8) at a 50% discount, $0.00025. A loss on conversion of $60,753 was recognized. On February 27, 2013, under the reset clause of the note, Southridge was issued an additional 20,255,000 shares of common stock (see Note 8) at a loss of $60,753. On February 27, 2013, Southridge converted $12,150 of the principal into 60,750,000 shares of common stock (see Note 8) at a 50% discount, $0.002. A loss on conversion of $48,600 was recognized. On March 12, 2013, Southridge converted $24,430 of the principal into 122,150,000 shares of common stock (see Note 8) at a 50% discount, $0.0002. A loss on conversion of $97,720 was recognized. On March 18, 2013, under the reset clause of the note, Southridge was issued an additional 40,716,667 shares of common stock (see Note 8) at a loss of $40,717. On March 18, 2013, Southridge converted $12,990 of the principal into 86,600,000 shares of common stock (see Note 8) at a 50% discount, $0.00015. A loss on conversion of $73,610 was recognized. On March 22, 2013, Southridge converted $19,100 of the principal into 127,333,333 shares of common stock (see Note 8) at a 50% discount, $0.00015. A loss on conversion of $108,233 was recognized. On April 1, 2013, Southridge converted $13,010 of the principal into 130,100,000 shares of common stock (see Note 10) at a 50% discount, $0.0001. A loss on conversion of $117,090 will be recognized. On April 10, 2013, Southridge converted $9,440 of the principal into 188,800,000 shares of common stock (see Note 8) at a 50% discount, $0.00005. A loss on conversion of $179,360 will be recognized. On April 15, 2013, Southridge converted $11,125 of the principal into 222,500,000 shares of common stock (see Note 10) at a 50% discount, $0.00005. A loss on conversion of $211,375 will be recognized. On April 22, 2013, Southridge converted $9,975 of the principal into 199,500,000 shares of common stock (see Note 10) at a 50% discount, $0.00005. A loss on conversion of $189,525 will be recognized. As of March 31, 2013, the principal balance of the note was $43,550.

 

On December 4, 2012, Southridge purchased $55,300 of the Reserve note. The balance as of December 31, 2012 is $55,300. On February 11, 2013, Southridge converted $14,400 of the note into 81,008,219 shares of common stock (see Note 8) at a 50% discount, $0.00025. A loss on conversion of $66,608 was recognized. As of March 31, 2013, the principal balance of the note was $40,900.

 

On December 4, 2012, Marina $25,000 of the TOL note dated June 28, 2011. On December 11, 2012, Marina converted $5,650 principal and $13 of accrued interest of the note into 9,438,367 shares of common stock at a 50% discount, $0.0006, at a loss on conversion of $3,775 on the conversion. On January 23, 2013, Marina converted $15,000 principal and $247 of accrued interest of the note into 30,493,151 shares of common stock (see Note 8) at a 50% discount, $0.0005, at a loss on conversion of $15,247. On February 12, 2013, Marina converted $4,350 principal and $100 of accrued interest of the note into 17,800,438 shares of common stock (see Note 8) at a 50% discount, $0.00025, at a loss on conversion of $13,350.  As of March 31, 2013, the note had a balance of $0.

 

On December 7, 2012, the Company entered into a note with TOL for $25,000. The note has an interest rate of 12% and matured on December 14, 2012. This note is in default.

 

On December 13, 2012, WHC purchased $35,000 of the TOL note. On December 27, 2012, WHC converted $10,091 of the note into 17,828,609 shares of common stock (see Note 12) at a 50% discount, $0.00057, at a loss on conversion of $7,738. On January 10, 2013, WHC converted $10,536 of the principal and $315 of accrued interest of the note into 20,359,000 shares of common stock (see Note 8) at a 50% discount, $0.00053, at a loss on conversion of $9,508. On January 18, 2013, WHC converted $10,700 of the note into 21,400,000 shares of common stock (see Note 8) at a 50% discount, $0.00025, at a loss on conversion of $10,700. On February 5, 2013, WHC converted $3,673 of the note into 11,019,480 shares of common stock (see Note 8) at a 50% discount, $0.000333, at a loss on conversion of $7,346. As of March 31, 2013, the note had a balance of $0.

 

On December 14, 2012, the Company entered into a note with TOL for $35,000. The note has an interest rate of 12% and matured on December 18, 2012. This note is in default.

 

On December 21, 2012, the Company entered into a convertible note with Asher in the amount of $53,000. The note matures on September 26, 2013 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $3,000 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $91,379. The Company therefore is accreting a premium of $38,379 into interest expense over the 180 day period to the first conversion date of the note. The funding of the note was on January 2, 2013 therefore the $50,000 was recorded as a receivable as of December 31, 2012.

 

On December 28, 2012, Southridge purchased $45,000 of the TOL note dated June 28, 2011. On January 28, 2013, Southridge converted $28,100 of the note into 62,444,444 shares of common stock (see Note 8) at a 50% discount, $0.00045. A loss on conversion of $34,344 was recognized. On February 5, 2013, Southridge converted $7,650 of the note into 25,500,000 shares of common stock (see Note 8) at a 50% discount, $0.0003. A loss on conversion of $17,850 was recognized. On February 6, 2013, Southridge converted $5,750 of the note into 23,000,000 shares of common stock (see Note 8) at a 50% discount, $0.00025. A loss on conversion of $17,250 was recognized. On March 5, 2013, Southridge converted $20,375 of the note into 101,875,000 shares of common stock (see Note 8) at a 50% discount, $0.0002. A loss on conversion of $81,500 was recognized. On May 4, 2013, Southridge converted $8,525 of the note into 170,500,000 shares of common stock (see Note 10) at a 50% discount, $0.00005. A loss on conversion of $161,975 will be recognized. The principal balance of the note as of March 31, 2013 was $8,525.

 

On December 31, 2012, the Company entered into a note with TOL for $45,000. The note has an interest rate of 12% and matured on January 7, 2013. The note was in default after the date of this Report.

 

On January 21, 2013, the Company entered into a note with Harmon for $52,010. The note has an interest rate of 12% and matured on January 24, 2013. The note was in default after the date of this Report.

 

On January 30, 2013, the Company entered into a note with Evolution for $22,750. The note has an interest rate of 12% and matured on February 7, 2013. The note was in default after the date of this Report.

 

On January 31, 2013, the Company entered into a convertible note with Asher in the amount of $32,500. The note matures on November 4, 2013 and may be converted at any time after 180 days from the date of the note. The interest, which accrues, is at a rate of 8% per annum. The conversion feature is at the average of the lowest three days trading price for the Company’s common stock during the ten trading day period ending on the day prior to conversion, less a discount of 42%. There was a $2,500 fee to a third party for legal expenses and related expenses for the closing of the note which was recorded as debt issue costs to be amortized over the debt term. The note is considered a stock settled debt since any future stock issued upon conversion will have a fair market value of $56,034. The Company therefore is accreting a premium of $23,534 into interest expense over the 180 day period to the first conversion date of the note.

 

On February 15, 2013, the Company entered into a note with Harmon for $15,000 in regards to accrued compensation from January 1, 2013 through February 15, 2013. The note has an interest rate of 12% and matured on February 25, 2013. The note was in default after the date of this Report.

 

On February 26, 2013, Momoma Capital purchased from Southridge a note dated March 30, 2012 for $25,000. On February 26, 2013, Momoma Capital converted $25,000 of the note into 42,641,879 shares of common stock (see Note 8) at a 50% discount, $0.00035, at a loss on conversion of $27,717. As of March 31, 2013, the balance of the note was $0.

 

On February 27, 2013, the Company entered into a note with Evolution for $20,255. The note has an interest rate of 12% and matured on March 1, 2013. The note was in default after the date of this Report.

 

On March 11, 2013, the Company entered into a note with Evolution for $36,580. The note has an interest rate of 12% and matured on March 15, 2013. The note was in default after the date of this Report.

 

On March 22, 2013, the Company entered into a note with Evolution for $19,100. The note has an interest rate of 12% and matured on March 25, 2013. The note was in default after the date of this Report.

 

On March 28, 2013, the Company entered into a note with Evolution for $62,650. The note has an interest rate of 12% and matured on April 1, 2013. The note was in default after the date of this Report.

 

On March 31, 2013, the Company entered into a note with Harmon for $15,000 in regards to accrued compensation from February 16, 2013 – March 31, 2013. The note has an interest rate of 12% and matured on April 10, 2013. The note was in default after the date of this Report.