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DEBT
9 Months Ended
Sep. 30, 2012
Debt Disclosure [Abstract]  
NOTE 10 - DEBT

Debt consists of the following at:

 

   

September 30,

2012

   

December 31,

2011

 
             
Notes Payable *   $ 265,000     $ 55,000  
Notes Payable-Convertible *     100,000       75,000  
Notes Payable-Convertible, in default *     75,000       -  
Notes Payable-Convertible, in default     87,000       -  
Notes Payable-Convertible     63,225       160,725  
Discounts on Convertible Notes Payable     (600 ) )     (90,827 )
Total Debt, Net of Discounts     589,625       199,898  
Less: Current, Net of Discounts     589,625       199,898  
Long Term, Net of Discounts   $ -     $ 50,000  

 * Related Party

 

Convertible Note Payable

 

On July 21, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which the Company sold to Asher an 8% Convertible Promissory Note in the original principal amount of $62,500 (the “First Asher Note”).  The First Asher Note has a maturity date of April 25, 2012, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price.  The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%).  “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.  “Fixed Conversion Price” shall mean $0.00009.  The shares of common stock issuable upon conversion of the First Asher Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933.  The purchase and sale of the First Asher Note closed on August 1, 2011, the date that the purchase price was delivered to the Company.  The issuance of the First Asher Note was exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 506 of Regulation D promulgated thereunder.  The purchaser was an accredited and sophisticated investor, familiar with our operations, and there was no solicitation.

  

The Company evaluated the First Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.1375 below the market price on July 21, 2011 of $0.25 provided a value of $51,136 of which $29,875 was amortized during 2011. In addition, on February 2, 2012, a principal amount of $1,500 was converted into 1,807,229 common shares at a conversion price of $0.00083 in accordance with the Variance Conversion Price.  During the three month period ended June 30, 2012, three more conversions took place and $55,500 was converted into 6,858,133 common shares.  As the note was fully mature as of April 25, 2012, the amortization expense was completely recognized, resulting in amortization expense of $21,261 during the six-month period ended June 30, 2012.  This note is currently in default which triggers an increase in its interest rate to 22% from 8%, which occurred on April 25, 2012.  During the three month period ended September 30, 2012, one more conversion took place and $3,500 was converted into 2,500,000 common shares.  The principal balance in default is 2,000; the associated accrued interest on this note is 4,449; both as of September 30, 2012.

 

On September 16, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which the Company sold to Asher an 8% Convertible Promissory Note in the original principal amount of $40,000 (the “Second Asher Note”). The Second Asher Note has a maturity date of June 20, 2012, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the Second Asher Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Second Asher Note closed on September 22, 2011, the date that the purchase price was delivered to the Company.

 

The Company evaluated the Second Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.11917 below the market price on September 16, 2011 of $0.30 provided a value of $40,000 of which $15,252 was amortized during 2011.  For the period ending September 30, 2012, $24,748 was amortized, and is now fully amortized, as this note fully matured on June 20, 2012. This note is currently in default which triggers an increase in its interest rate to 22% from 8%, which occurred on June 20, 2012.  The principal balance in default is 40,000; the associated accrued interest on this note is 3,325; both as of September 30, 2012.

 

On November 17, 2011, for value received, the Company gave a convertible promissory note to The Lebrecht Group, APLC, in the original principal amount of $13,225 (the “Lebrecht Note”). The Lebrecht Note has a maturity date of November 18, 2012, and principle and accrued interest at the rate of ten percent (10%) are due at that time.  The note holder has an option to convert the note into Common Stock to be issued upon each conversion of the Lebrecht Note and shall be determined by dividing the Conversion Amount by the Conversion Price, which shall be equal to the greater of (i) the Fixed Conversion Price, which is $0.001 per share, and (ii) the Variable Conversion Price, which is seventy five percent (75%) of the closing bid price for the Common Stock on the trading day immediately preceding the conversion, (the Fixed Conversion Price and the Variable Conversion Price, as applicable, shall be referred to as the “Conversion Price”).

  

The Company evaluated the Lebrecht Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.10125 below the market price on November 17, 2011 of $0.135 provided a value of $4,408 of which $529 was amortized during 2011.  For the nine-month period ending September 30, 2012, $3,279 was amortized.

 

On December 6, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc., pursuant to which the Company sold to Asher an 8% Convertible Promissory Note in the original principal amount of $45,000 (the “Third Asher Note”). The Third Asher Note has a maturity date of September 8, 2012, and is convertible into Company common stock at the greater of (i) the Variable Conversion Price and (ii) the Fixed Conversion Price. The “Variable Conversion Price” shall mean 55% multiplied by the Market Price (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Fixed Conversion Price” shall mean $0.00009. The shares of common stock issuable upon conversion of the Third Asher Note will be restricted securities as defined in Rule 144 promulgated under the Securities Act of 1933. The purchase and sale of the Third Asher Note closed on December 8, 2011, the date that the purchase price was delivered to the Company.

 

The Company evaluated the Third Asher Note and determined that the shares issuable pursuant to the conversion option were determinate due to the Fixed Conversion Price and, as such, does not constitute a derivative liability as the Company has obtained authorization from a majority of shareholders such that should conversion occur at the Fixed Conversion Price the appropriate number of shares will be available or issuable for settlement to occur. The beneficial conversion feature discount resulting from the conversion price of $0.0605 below the market price on December 6, 2011 of $0.14 provided a value of $45,000 of which $4,061 was amortized during 2011. For the period ending September 30, 2012, $40,939 was amortized, and is now fully amortized, as this note fully matured on September 8, 2012. This note is currently in default which triggers an increase in its interest rate to 22% from 8%, which occurred on June 20, 2012.  The principal balance in default is 45,000; the associated accrued interest on this note is 2,287; both as of September 30, 2012.

 

On April 2, 2012, a convertible note loan from Robert Cowdell was secured for $50,000 in cash.  The promissory note is convertible into the Company’s common stock at a rate of $0.04 per share.  The convertible promissory note bears interest at the rate of 12% per annum and matures 6 months from the date the purchase installment was received.  Accrued interest as of September 30, 2012 was $3,004.

 

The Company evaluated this convertible note for derivative liability treatment noting that if the shares were converted at a fixed price of $0.04 per share, and the principal value of $50,000, this would result in 1,250,000 additional shares which is approximately 2.5% of the authorized share count; therefore, the number of shares is determinate and in conclusion, the note is not considered a derivative liability. In addition, the Company evaluated this related party convertible note for a beneficial conversion feature noting that the conversion price of $0.04 which was exactly the same as the market price of $0.04 on the date of issuance; therefore, no beneficial conversion feature was created during issuance of this note.

 

In summary, the First, Second and Third Asher Notes and the Lebrecht Note resulted in beneficial conversion feature amortization during the nine months ended September 30, 2012 and 2011, of $21,261, $24,748, $40,939 and $3,279; and $13,013, $2,014, $0 and $0, respectively.  This equals a total beneficial conversion amortization expense for the nine month periods ended September 30, 2012 and 2011, of $90,227 and $15,028, respectively.

  

Total Accrued interest for the above convertible notes is $14,738 and $3,436 as of September 30, 2012 and December 31, 2011, respectively.

 

Convertible Note Payable – Related Party

 

On July 2, 2010, a convertible note loan from Holland Family Trust, (whose sole trustee was Franklena Holland, mother of Company president Craig Holland), was secured for $100,000.  The Company has received $75,000 of the purchase price, with the remaining $25,000 to be paid at a later date.  The promissory note is convertible into the Company’s common stock at a rate of $0.10 per share.  The convertible promissory note bears interest at the rate of 10% per annum and matures 12 months from the date each purchase installment was received.  Accrued interest as of September 30, 2012 was $2,500.  The Company had a convertible note payable balance of $75,000 for the nine-month period ended September 30, 2012 and December 31, 2011.  On April 19, 2012, Franklena E. Holland passed away. The terms of the Holland Family Trust indicate that Craig B. Holland becomes the Successor Trustee after Franklena's passing. As of April 19, 2012, Mr. Holland is now acting as the Trustee of the Holland Family Trust. As the maturity date of this note is July 1, 2012; this note is currently in default.

 

The Company evaluated this related party convertible note for derivative liability treatment noting that if the shares were converted at a fixed price of $0.10 per share, and the principal value of $75,000, this would result in 750,000 additional shares which is less than 1% of the authorized share count; therefore, the number of shares is determinate and in conclusion, the note is not considered a derivative liability. In addition, the Company evaluated this related party convertible note for a beneficial conversion feature noting that the conversion price of $0.10 which was exactly the same as the market price of $0.10 during the 2009-2010 fiscal years when the common shares were being sold to private purchasers consistently at this price; therefore, no beneficial conversion feature was created during issuance of this note.

 

On January 26, 2012, a convertible note loan from Holland Family Trust, (whose sole trustee was Franklena Holland, mother of Company president Craig Holland), was secured for $100,000.  The promissory note is convertible into the Company’s common stock at a rate of $0.05 per share.  The convertible promissory note bears interest at the rate of 10% per annum and matures 12 months from the date each purchase installment was received.  Accrued interest as of September 30, 2012 was $5833.  The Company had a convertible note payable balance of $100,000 for period the period ended September 30, 2012 and December 31, 2011.   On April 19, 2012, Franklena E. Holland passed away. The terms of the Holland Family Trust indicate that Craig B. Holland becomes the Successor Trustee after Franklena's passing. As of April 19, 2012, Mr. Holland is now acting as the Trustee of the Holland Family Trust.

 

The Company evaluated this related party convertible note for derivative liability treatment noting that if the shares were converted at a fixed price of $0.05 per share, and the principal value of $100,000, this would result in 2,000,000 additional shares which is approximately 2% of the authorized share count; therefore, the number of shares is determinate and in conclusion, the note is not considered a derivative liability. In addition, the Company evaluated this related party convertible note for a beneficial conversion feature noting that the conversion price of $0.05 which was exactly the same as the market price of $0.05 on the date of issuance; therefore, no beneficial conversion feature was created during issuance of this note.

 

Note Payable - Related Party

 

As of July 1, 2010, there is a note payable to Craig Holland and Mick Donahoo for $25,000 each (a total of $50,000 notes payable) for money that was loaned to the Company to secure the Sunwest Bank debt.  The money was loaned to the Company at a rate of 10% interest compounded annually and matures on September 30, 2012.

 

As of October 19, 2011, there is a note payable to Mick Donahoo for $5,000 for money that was loaned to the Company to secure equipment.  The money was loaned to the Company at a rate of 10% interest compounded annually and matures on October 19, 2013.

 

As of April 11, 2012, there is a note payable to Mick Donahoo for $15,000 for money that was loaned to the Company.  The money was loaned to the Company at a rate of 10% interest compounded annually and matures on October 11, 2012.

 

As of April 25, 2012, there is a note payable to Craig Holland and Mick Donahoo for $10,000 each (a total of $20,000 notes payable) for money that was loaned to the Company.  The money was loaned to the Company at a rate of 10% interest compounded annually and matures on October 25, 2012.

 

As of June 21, 2012, there is a note payable to the Holland Family Trust for $40,000 for money that was loaned to the Company.  The money was loaned to the Company at a rate of 10% interest compounded annually and matures on January 24, 2013.

 

As of August 13, 2012, there is a note payable to the Holland Family Trust for $70,000 for money that was loaned to the Company.  The money was loaned to the Company at a rate of 10% interest compounded annually and matures on February 13, 2013.

 

As of September 12, 2012, there is a note payable to the Holland Family Trust for $65,000 for money that was loaned to the Company.  The money was loaned to the Company at a rate of 10% interest compounded annually and matures on March 12, 2013.

 

The Company had a note payable balance of $440,000 for the nine-month period ended September 30, 2012 and $55,000 at December 31, 2011.  For the nine-month period ended September 30, 2012 and September 30, 2011, the Company recorded interest expense of $6,782 and $5,242, respectively.

 

The Company recorded total interest expense, including beneficial conversion feature amortization, for all debt of $125,202 and $7,127 for the nine-month period ended September 30, 2012, and 2011, respectively. However, the amortization expense related to the beneficial conversion features of $90,227 is not included in interest expense on the financial statements; rather it is included in amortization expense and was only applicable in the nine-months ended September 30, 2012.