Related Party Transactions | 9 Months Ended |
Sep. 30, 2013 |
Related Party Transactions | |
NOTE 4 - RELATED PARTY TRANSACTIONS | A – Convertible Notes Payable |
The Company has entered into multiple convertible notes payable agreements with an investment firm that is also a minority stockholder of the Company. Each note carries a separately dated promissory note that bears interest of 8% and is payable on or before August 31, 2010, with each funding due one year from original date of receipt. Principal and interest are convertible at the option of the note-holder into shares of the Company’s common stock at the rate of 80% of the average of the five daily volume weighted average price preceding the conversion date. Several Notes are in default and status of default is indicated in the following table. The Notes carry no penalty or change in interest rate for default. Interest expense on the convertible notes years ended December 31, 2012 and December 31, 2011, totaled $45,200 and $45,680, respectively. Due to the contingent nature of the conversion price, the company accounted for beneficial conversion feature and derivative liability on the note. The convertible promissory notes with the investment firm totaled $565,000 at December 31, 2012, December 31, 2011 and December 31, 2010 and are summarized as follows: |
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Convertible Notes | | | | | | |
| Issue date | | Maturity | | Principal | | | Interest Rate | | | Date of Default | | | | | | |
(A) | 12/31/08 | | 1/5/10 | | | 90,000 | | | | 8 | | % | 1/5/10 | | | | | | |
(A) | 1/16/09 | | 1/5/10 | | | 100,000 | | | | 8 | | % | 1/5/10 | | | | | | |
(A) | 1/23/09 | | 1/5/10 | | | 50,000 | | | | 8 | | % | 1/5/10 | | | | | | |
(A) | 2/2/09 | | 1/5/10 | | | 25,000 | | | | 8 | | % | 1/5/10 | | | | | | |
(A) | 3/9/09 | | 1/5/10 | | | 10,000 | | | | 8 | | % | 1/5/10 | | | | | | |
(B) | 4/8/09 | | 4/8/10 | | | 50,000 | | | | 8 | | % | 4/8/10 | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| 6/23/09 | | 6/23/10 | | | 25,000 | | | | 8 | | % | 6/23/10 | | | | | | |
| 7/1/09 | | 7/1/10 | | | * | | | | 8 | | % | 7/2/10 | | | | | | |
| 7/6/09 | | 7/6/10 | | | 20,000 | | | | 8 | | % | 7/7/10 | | | | | | |
| 8/26/09 | | 8/31/10 | | | 195,000 | | | | 8 | | % | 9/1/10 | | | | | | |
| | | Totals | | $ | 565,000 | | | | | | | | | | | | | |
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(A), Amounts borrowed were part of a master note agreement totaling $ 275,000 |
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* This note was repaid in January 2011 |
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January 5, 2009 Note: |
From January 5, 2009 to March 9, 2009, the Company issued a $275,000 Convertible Note that matured on January 5, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion. |
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The Company identified embedded derivatives related to the Convertible Note entered into on March 9, 2009 (completion of funding as per agreement). These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $218,585 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: |
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Dividend yield: | | -0- | % | | | | | | | | | | | | | | | |
Volatility | | | 181.03 | % | | | | | | | | | | | | | | | |
Risk free rate: | | | 0.82 | % | | | | | | | | | | | | | | | |
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The initial fair value of the embedded debt derivative of $125,165 was allocated as a debt discount with the remainder ($93,420) charged to current period operations as interest expense. |
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During the year ended December 31, 2011 and 2010, the Company amortized $0 and $2,072 to current period operations as amortization of beneficial conversion feature. |
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The fair value of the described embedded derivative of $200,161, $3,449,722 and $266,461 at Sept 30, 2013, June 30, 2013 and March 31, 2013, respectively was determined using the Black Scholes Model with the following assumptions: |
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| | 30-Sep-13 | | | 30-Jun-13 | | | | | | | | | | | | |
Dividend yield: | | | -0- | % | | | -0- | % | | | | | | | | | | | |
Volatility | | | 577.76 | % | | | 469.97 | % | | | | | | | | | | | |
Risk free rate: | | | 0.33 | % | | | 0.28 | % | | | | | | | | | | | |
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At September 30, 2013, the Company adjusted the recorded fair value of the derivative liability to market resulting in non-cash, non-operating gain $4,879,620. |
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April 8, 2009 Note: |
From April 8, 2009, the Company issued a $50,000 Convertible Note that matured on April 8, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion. |
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The Company identified embedded derivatives related to the Convertible Note entered into on April 8, 2009. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $42,239 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: |
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Dividend yield: | | -0- | % | | | | | | | | | | | | | | | |
Volatility | | | 291.51 | % | | | | | | | | | | | | | | | |
Risk free rate: | | | 0.8 | % | | | | | | | | | | | | | | | |
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The initial fair value of the embedded debt derivative of $20,261 was allocated as a debt discount with the remainder ($21,978) charged to that period of operations as interest expense. |
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During the year ended December 31, 2012 and 2011, the Company amortized $0 to current period operations as amortization of beneficial conversion feature. |
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The fair value of the described embedded derivative of $32,279, $ 636,872 and $41,175 at September 30, 2013, June 30, 2013 and March 31, 2013, was determined using the Black Scholes Model with the following assumptions: |
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| | 30-Sep-13 | | | 30-Jun-13 | | | | | | | | | | | | |
Dividend yield: | | | -0- | % | | | -0- | % | | | | | | | | | | | |
Volatility | | | 577.76 | % | | | 469.97 | % | | | | | | | | | | | |
Risk free rate: | | | 0.33 | % | | | 0.28 | % | | | | | | | | | | | |
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June 23, 2009 Note: |
From June 23, 2009, the Company issued a $25,000 Convertible Note that matured on June 23, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion. |
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The Company identified embedded derivatives related to the Convertible Note entered into on June 23, 2009. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $19,148 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: |
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Dividend yield: | | -0- | % | | | | | | | | | | | | | | | |
Volatility | | | 291.51 | % | | | | | | | | | | | | | | | |
Risk free rate: | | | 0.8 | % | | | | | | | | | | | | | | | |
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The initial fair value of the embedded debt derivative of $12,102 was allocated as a debt discount with the remainder ($7,046) charged to that period of operations as interest expense. |
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The fair value of the described embedded derivative of $18,639, $318,158 and $20,587at September 30, 2013, June 30, 2013 and March 31, 2013 and December 31, 2012, respectively was determined using the Black Scholes Model with the following assumptions: |
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| | 30-Sep-13 | | | 30-Jun-13 | | | | | | | | | | | | |
Dividend yield: | | | -0- | % | | | -0- | % | | | | | | | | | | | |
Volatility | | | 577.76 | % | | | 469.97 | % | | | | | | | | | | | |
Risk free rate: | | | 0.33 | % | | | 0.28 | % | | | | | | | | | | | |
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July 2009 and August 2009 Note: |
From July 2009 to August, 2009, the Company issued a three note totaling to $315,000 Convertible Note that matured on July 1, 2010, July 6, 2010 and August 31, 2010. The note bears interest at a rate of 8% and is convertible into the Company’s common stock at any time at the holder’s option, at the conversion rate of 80% of the average rate of five preceding the closing date prior to notice of conversion. |
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The Company identified embedded derivatives related to the Convertible Note entered into on date of Note. These embedded derivatives included certain conversion features. The accounting treatment of derivative financial instruments requires that the Company record the fair value of the derivatives as of the inception date of the Convertible Note and to adjust the fair value as of each subsequent balance sheet date. At the inception of the Convertible Note, the Company determined a fair value of $241,266 of the embedded derivative. The fair value of the embedded derivative was determined using the Black Scholes Model based on the following assumptions: |
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Dividend yield: | | -0- | % | | | | | | | | | | | | | | | |
Volatility | | | 293 | % | | | | | | | | | | | | | | | |
Risk free rate: | | | 0.8 | % | | | | | | | | | | | | | | | |
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The initial fair value of the embedded debt derivative of $152,484 was allocated as a debt discount with the remainder ($88,782) charged to that period of operations as interest expense. |
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During the year ended December 31, 2012 and 20110, the Company amortized $0 to current period operations as amortization of beneficial conversion feature. |
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On January 22, 2011, the $100,000 of the Convertible Note was assigned to Shareholder at the $0.001 of conversion price. The Company recorded $582,973 as loss on change in term of note. On the same date the Company issued 333,333 no of Common stock against settlement of this Note of $100,000 and accrued interest of $12,482. |
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The fair value of the described embedded derivative of $160,387, $ 2,731,305 and $ 177,052 at September 30, 2013, June 30, 2013 and March 31, 2013 was determined using the Black Scholes Model with the following assumptions: |
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| | 30-Sep-13 | | | 30-Jun-13 | | | | | | | | | | | | |
Dividend yield: | | | -0- | % | | | -0- | % | | | | | | | | | | | |
Volatility | | | 577.76 | % | | | 469.97 | % | | | | | | | | | | | |
Risk free rate: | | | 0.33 | % | | | 0.28 | % | | | | | | | | | | | |
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B – Short-Term Notes Payable |
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The Company has borrowed funds from stockholders for working capital purposes from time to time. The loans are non-interest bearing, payable on demand and, consequently, reported as current liabilities. The Company has received $39,514 in advances since inception and made repayments of $7,019 in cash, resulting in a payable balance of $32,495, during 2012 the remaining balance was settled through issuance of common stock and the Company obtained additional short term loan during the third quarter of $25,000 bringing the total short loans for September 30, 2013 to $68,302 |
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C – Bonds Payable, Convertible and Secured |
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The Company has entered into multiple convertible bond agreements with an investment firm that is also a minority stockholder of the Company. |
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The convertible bonds were listed below: |
| Issue date | | Maturity | | Principal | | | | Interest rate | | | Default rate | | | | Date of Default |
(A) | 10/15/08 | | 10/15/10 | | $ | 1,058,407 | | * | | | 9 | % | | | 18 | % | | | 1/15/10 |
(B) | 4/30/09 | | 10/31/10 | | | 300,000 | | | | | 9 | % | | | 18 | % | | | 1/15/10 |
(C) | 10/12/09 | | 1/12/10 | | | 252,000 | | | | | 9 | % | | | 9 | % | | | 1/13/10 |
(D) | 11/3/09 | | 2/3/10 | | | - | | * | | | 9 | % | | | 9 | % | | | 2/3/10 |
| Totals | | | | $ | 1,610,407 | | | | | | | | | | | | | |
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*On August 23, 2010, the Company repaid $241,593 in principal on (A) and $210,000 in principal on (D). |
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In October 2012, the Company retired its Series I Preferred stock, by issuing 45,000,000 shares of common stock to retire the Series I Preferred in satisfaction of the remaining bond debt, recording an addition to paid- in-capital of $16,752,000. |
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The Company through a third-party had entered into an agreement to convert certain debt instruments pursuant to the terms of a convertible bond debenture for the purpose of reducing or eliminating the debt to the bond holder. The Company issued free trading shares of appropriately aged debt to eliminate approximately $200,000 of debt held by the bond holder. However, during the year ended December 31, 2012, the Company accounted for shares of its common stock issued to third parties as services rendered and payment of a deposit to acquire an asset. The Company determined the shares of common stock while issued, were held by the Company’s sole officer and Director and not issued to the third parties. In addition, during the year ended December 31, 2012 the Company issued and disbursed shares to a holder of its previously issued and outstanding debt in exchange for unpaid principal and interest and accounted for the issuance as a reduction in the unpaid debt. The Company determined shares issued were not delivered to the holder of the debt and accordingly, the debt has not been reduced... |