5. Notes Payable | 12 Months Ended |
Dec. 31, 2013 |
Debt Disclosure [Abstract] | ' |
5. Notes Payable | ' |
Notes payable consist of the following: |
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| | December 31, | | | December 31, | |
| | 2013 | | | 2012 | |
Convertible notes payable, issued in 2010, interest rate of 12%, due on demand and convertible at a rate of $0.04 to $0.05 per share | | $ | 500,000 | | | $ | 500,000 | |
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Notes payable, issued in 2007 and 2008, interest rate of 10%, due on demand | | | 565,000 | | | | 565,000 | |
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Notes payable - related party, issued in 2010 and revised in 2013, interest rate of 10%, due on demand | | | 8,750,000 | | | | 8,376,169 | |
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Notes payable, issued in 2008, interest rate of 10%, due on demand | | | 75,000 | | | | 75,000 | |
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Notes payable - related party (2013 only), issued in 2011, nominal interest rate of 10%, due on demand | | | 255,000 | | | | 255,000 | |
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Notes payable - related party (2013 only), issued in 2012, interest rate of 10%, due on demand | | | 21,740 | | | | 21,740 | |
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Total notes payable, gross | | | 10,166,740 | | | | 9,792,909 | |
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Unamortized debt discounts | | | – | | | | (1,403,000 | ) |
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Total notes payable, net | | $ | 10,166,740 | | | $ | 8,389,909 | |
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Accrued interest | | $ | 1,025,689 | | | $ | 3,101,607 | |
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Total interest expense | | $ | 2,629,131 | | | $ | 2,222,884 | |
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Debt discount amortization included in interest expense | | $ | 1,403,000 | | | $ | 961,755 | |
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As of December 31, 2013 and 2012 the Company was in default on all of its notes payable, correspondingly, all obligations have become due on demand and are classified as current liabilities in the accompanying balance sheets. At December 31, 2013 and 2012 notes payable totaling $9,026,740 and $276,740 were held by members of New Hope Partners, the Company’s control group, a related party since 2013. As a result, the corresponding notes payable and accrued interest due to New Hope Partners have been reclassified to related party notes payable, net and related party accrued interest, respectively, in the accompanying balance sheets. |
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During the year ended December 31, 2013, as part of the settlement agreement between New Hope Partners, the Company, and the New Jersey Attorney General, notes payable with an unamortized principal balance of $8,376,169 and accrued interest of $3,284,562, were considered “compromised” and the total obligation was adjusted to $8,750,000. In addition, New Hope Partners become an 88% beneficial owner of the note. In accordance with the terms of the transaction, the Company fully recognized the remaining unamortized discount, classified as interest expense, of $1,403,000. The forgiveness of previously accrued interest totaling $2,910,731 was recognized as an increase in additional paid in capital since settlements with related parties are considered to be in the nature of capital contributions with no additional gain recognized. |
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As part of the final settlement of the Company’s former oil and gas exploration business associated with its previously held unproven oil and gas properties, holders of notes totaling $457,317 agreed to forgive their obligations in exchange for the Company giving up its right to any future revenue generated from the property. During the year ended December 31, 2012 the Company recognized the settlement of $534,187 related to these notes, inclusive of the previously accrued interest of $76,870. |