5. CONVERTIBLE PROMISSORY NOTES | 9 Months Ended |
Sep. 30, 2013 |
Debt Disclosure [Abstract] | ' |
Debt Disclosure [Text Block] | ' |
5. CONVERTIBLE PROMISSORY NOTE |
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As of September 30, 2013, the Company had the following securities purchase agreements: |
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On September 19, 2012 and November 23, 2012, the Company entered into two securities purchase agreements each providing for the sale of an 8% unsecured Convertible Notes (“the Notes”) in the principal amounts of $42,500, and $32,500 for an aggregate total of $75,000. The notes matured on June 21, 2013, and August 15, 2013, respectively. After one hundred and eighty days (180) the holder converted both notes for an aggregate principal sum of $75,000, plus accrued interest of $3,000 on various dates during the nine months ended September 30, 2013, into 9,875,627 shares of common stock at prices ranging from $0.0068 to $0.0118 per share. The notes were measured at fair value using the Black-Scholes pricing model, and the Company recognized a gain on conversion of $2,490. The Company recorded debt discount of $62,446 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the remaining debt discount was amortized, and recorded as interest expense in the amount of $43,530, resulting in a net remaining debt discount of $0 at September 30, 2013. |
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On October 24, 2012, the Company entered into a securities purchase agreement, providing for the sale of a 10% convertible note in the aggregate principal amount of $335,000, with an original issue discount of $35,000. Advances will be paid in amounts at the lender’s discretion. Upon execution of the securities purchase agreement, the Company received an advance of $50,000, with an original issued discount of $5,833. The note matures one (1) year from the effective date of each advance. If the advances are repaid within 90 days, the interest rate will be zero percent (0%), otherwise a one time interest rate of five percent (5%) will be applied to the principal sums outstanding. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.035 per share or seventy percent (70%) of the lowest trading price of the previous 25 trading days prior to conversion. On September 25, 2013, the Company received an additional advance of $25,000, with an original issue discount of $2,916. During the nine months ended September 30, 2013, the investor converted principal in the amount of $94,500, and recognized a gain of $21,120. The advances received after the execution of the note equal a total principal amount of $125,000, with an original issued discount of $14,584. As of September 30, 2013, the aggregate principal sum outstanding was $80,500, plus the original issued discount of $20,416 for a total of 100,916. The Company recorded debt discount of $138,845 related to the conversion feature of the note, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $81,391, resulting in a remaining net debt discount of $57,454 at September 30, 2013. |
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On November 13, 2012, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts are at the lender’s discretion. The Company received additional advances for the sum of $80,000 on various dates]. As of September 30, 2013, the total aggregate principal amount outstanding was $100,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.01 per share or fifty percent (50%) of the lowest trading price in the previous 25 trading days. The note matures one (1) year from the effective date of each advance with respect to each advance. The Company recorded debt discount of $100,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $79,808, resulting in a remaining net debt discount of $20,192 at September 30, 2013. |
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On November 29, 2012, the Company entered into a securities purchase agreement providing for the sale of a 10% unsecured convertible note in the principal aggregate amount of up to $80,000, at which time an initial advance of $12,500 was received by the Company. The note is, payable in full on or before November 29, 2013 unless sooner converted into shares of the Company’s common stock. The holder converted the principal amount of the note of $12,500, plus accrued interest of $625 on May 31, 2013, into 3,088,235 shares of common stock at a price of $0.0043 per share. The note was measured at fair value using the Black-Scholes pricing model, and the Company recognized a gain on conversion of $293. The Company recorded debt discount of $12,500 related to the conversion feature of the note, along with derivative liabilities at inception. As of September 30, 2013, the remaining debt discount was amortized, and recorded as interest expense in the amount of $12,500, resulting in a remaining net debt discount of $0 at September 30, 2013. |
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On November 29, 2012, the Company entered into a securities purchase agreements providing for the sale of a 10% unsecured convertible note in the principal aggregate amount of up to $80,000, at which time an initial advance of $12,500 was received by the Company. The note is payable in full on or before November 29, 2013 unless sooner converted into shares of the Company’s common stock. The holder converted the principal amount of the note of $12,500, plus accrued interest of $959 on September 5, 2013, into 3,166,801 shares of common stock at a price of $0.0043 per share. The fair value of the note has been determined by using the Black-Scholes pricing model, and recognized a gain on conversion of $607. The Company recorded debt discount of $12,500 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $12,500, resulting in a remaining net debt discount of $0 at September 30, 2013 |
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On December 26, 2012, the Company exchanged certain demand promissory notes in the aggregate amount of $114,500 plus accrued interest of $4,084 for a convertible promissory note in the aggregate principal amount of $118,584, convertible into shares of common stock of the Company at a price equal to the lesser of (a) $0.0326 per share or (b) 50% of the lowest trade price of common stock recorded on any trade day after the effective date. The note matured on July 25, 2013. The Company recorded the remaining debt discount from the previous promissory notes of $59,196 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $59,196, resulting in a remaining net debt discount of $0 at September 30, 2013 |
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On February 19, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $15,000. The advance amounts are at the lenders discretion. The Company received additional advances for the sum of $85,000 for a total aggregate principal amount of $100,000 outstanding as of September 30, 2013. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.032 per share or fifty percent (50%) of the lowest trading price of the previous 25 trading days. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $100,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $88,944, resulting in a remaining net debt discount of $10,056 at September 30, 2013. |
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On March 1, 2013, the Company entered into a securities purchase agreement providing for the sale of a 5% convertible promissory note in the aggregate principal amount of $8,000, for consideration of $8,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.02 per share or the lowest closing price after the effective date. The note matures two (2) years from the effective date of the advance. The Company recorded debt discount of $7,626 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $2,225, resulting in a remaining net debt discount of $5,401 at September 30, 2013. |
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On May 1, 2013, the Company entered into a securities purchase agreement providing for the sale of an 8% convertible promissory note in the aggregate principal amount of $32,500, for consideration of $32,500. The note is convertible into shares of common stock of the Company at a price equal to 58% times the average of the lowest three trading prices for the common stock during the ten days prior to the conversion. The note matures on January 29, 2014. The Company recorded debt discount of $32,500 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $18,095, resulting in a remaining net debt discount of $14,405 at September 30, 2013. |
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On May 30, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of $100,000. Upon execution of the note, the Company received an initial advance of $4,000. The advance amounts received are at the lender’s discretion. The Company received additional advances for a sum of $73,000 on various dates. As of September 30, 2013, the aggregate principal amount outstanding is $77,000. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of $0.013 per share or fifty percent (50%) of the lowest trading price after the effective date. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $77,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $27,450, resulting in a remaining net debt discount of $49,550 at September 30, 2013. |
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On August 1, 2013, the Company entered into a securities purchase agreement providing for the sale of an 8% convertible promissory note in the aggregate principal amount of $42,500, for consideration of $42,500. The note is convertible into shares of common stock of the Company at a price equal to 58% times the average of the lowest three trading prices for the common stock during the ten days prior to the conversion. The note matures on April 29, 2014. The Company recorded debt discount of $42,500 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $9,410, resulting in a remaining net debt discount of $33,090 at September 30, 2013. |
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On August 28, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts received are at the lender’s discretion. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $20,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $3,667, resulting in a remaining net debt discount of $16,333 at September 30, 2013. |
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On August 30, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts received are at the lender’s discretion. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $20,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $3,444, resulting in a remaining net debt discount of $16,556 at September 30, 2013. |
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On September 9, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts received are at the lender’s discretion. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $20,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $2,333, resulting in a remaining net debt discount of $17,667 at September 30, 2013. |
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On September 19, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $20,000. The advance amounts received are at the lender’s discretion. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $20,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $1,222, resulting in a remaining net debt discount of $18,778 at September 30, 2013. |
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On September 24, 2013, the Company entered into a securities purchase agreement providing for the sale of a 10% convertible promissory note in the principal amount of up to $100,000. Upon execution of the note, the Company received an initial advance of $67,000. The advance amounts received are at the lender’s discretion. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price equal to the lesser of a) $0.013 per share, b) fifty percent (50%) of the lowest trading price after the effective date, or c) the lowest conversion price offered by the Company with respect to any financing occurring before or after the date of the note. The note matures six (6) months from the effective date of each advance with respect to each advance. The Company recorded debt discount of $67,000 related to the conversion feature of the notes, along with derivative liabilities at inception. As of September 30, 2013, the debt discount was amortized, and recorded as interest expense in the amount of $2,233, resulting in a remaining net debt discount of $64,767 at September 30, 2013. |
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We evaluated the financing transactions in accordance with ASC Topic 815, Derivatives and Hedging, and determined that the conversion feature of the convertible promissory note was not afforded the exemption for conventional convertible instruments due to its variable conversion rate. The note has no explicit limit on the number of shares issuable so they did not meet the conditions set forth in current accounting standards for equity classification. The Company elected to recognize the note under paragraph 815-15-25-4, whereby, there would be a separation into a host contract and derivative instrument. The Company elected to initially and subsequently measure the note in its entirety at fair value, with changes in fair value recognized in earnings. The derivative liability is adjusted periodically according to the stock price fluctuations. At the time of conversion, any remaining derivative liability will be charged to additional paid-in capital. |
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For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows: |
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Stock price on the valuation dates | | | | | | | $ | 0.0161 | |
Conversion price for the debt | | $ | 0.002 | | | - | | $ | 0.02 | |
Dividend yield | | | 0 | % | | | | | | |
Years to Maturity | | 6 months | | | - | | 2 years | |
Risk free rate | | | 0.02 | % | | - | | | 0.34 | % |
Expected volatility | | | 30.45 | % | | - | | | 272.98 | % |
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The derivative liability recognized in the financial statements as of September 30, 2013 was $1,885,906. |
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