Convertible promissory notes, including related parties and debenture payable | 6 Months Ended |
Jun. 30, 2014 |
Debt Disclosure [Abstract] | ' |
Convertible promissory notes, including related parties and debenture payable | ' |
6 | Convertible promissory notes, including related parties and debenture payable: | | | | | | | | | | | | | | | | | | | |
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Promissory notes, including related parties at June 30, 2014 and December 31, 2013, consist of the following: |
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| | 2014 | | 2013 | | | | | | | | | | | | |
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Promissory notes payable: | | | | | | | | | | | | | | | | | | | | |
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Various, including related parties of $129,547 (2014) and $170,338 (2013); interest rate ranging from 8% to 10% [A] | | $ | 146,422 | | | $ | 192,213 | | | | | | | | | | | | | |
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Notes payable; interest rates ranging from 9% to 15%; interest payable quarterly; the notes are unsecured, matured on February 28, 2008; currently in default and past due [B] | | | 2,090,719 | | | | 2,090,719 | | | | | | | | | | | | | |
| | $ | 2,237,141 | | | $ | 2,282,932 | | | | | | | | | | | | | |
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| [A] | Pursuant to a November 4, 2011 Board of director resolution, these notes are convertible at conversion rates, determined at the discretion of the board of directors. During the six months ended June 30, 2014 the Company issued notes of $5,000 (to related parties) and made payments of $50,791 (including $45,791 to related parties). | | | | | | | | | | | | | | | | | | |
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| [B] | These notes payable (the “Promissory Notes”) originally became due on February 28, 2007. The Company renewed $283,000 of the Promissory Notes on the same terms and conditions as previously existed. In April 2007 the Company, through a financial advisor, restructured $1,825,000 of the Promissory Notes (the “Restructured Notes”). The Company has accrued an expense of $36,500 to compensate the financial advisor 2% of the Restructured Notes as well as having issued 150,000 shares of common stock to the financial advisor. The Restructured Notes carry a stated interest rate of 15% (a default rate of 20%) and matured on February 28, 2008. The Company has not paid the interest due since June 2007, and no principal payments on the Promissory Notes have been made since 2008 and accordingly, they are in default. Accrued interest on these notes total $3,014,686 and is included in accrued expenses on the consolidated balance sheets. | | | | | | | | | | | | | | | | | | |
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The chairman of the board of the Company has personally guaranteed up to $1 million of the Restructured Notes and two other non-related individuals each guaranteed $500,000 of the Restructured Notes. In consideration of their guarantees the Company granted warrants to purchase a total of 1,600,000 shares of common stock of the Company at an exercise price of $0.50 per share. The warrants were valued at $715,200 using the Black-Scholes option pricing model and were amortized over the one-year term of the Restructured Notes. The warrants expired in March 2010. |
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In January 2008, the Company and the three guarantors received a complaint filed by the financial advisor (acting as agent for the holders of the Restructured Notes) and the holders of the Restructured Notes. The claim is seeking $1,946,250 plus per diem interest beginning January 22, 2008 at the rate of twenty percent (20%) per annum plus $37,000 due the financial advisor for unpaid fees. The court has ruled in favor of a motion for summary judgment filed by certain of the plaintiffs and a judgment was entered on August 18, 2009 in the total amount of $2,484,922 in principal and interest on the notes, $40,920 in related claims and $124,972 in attorney’s fees and expenses. The Company is not aware of any payments being made by any of the guarantors and accordingly, the Company includes these liabilities on the June 30, 2014 and December 31, 2013 balance sheets promissory notes payable and accrued expenses. |
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Debenture payable: |
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2012 Notes |
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On October 9, 2012, the Company issued a $5,000 convertible promissory note to Carebourn Capital LP (“Carebourn”). The Carebourn note was due on demand, bears interest at 8% per annum and had a conversion feature similar to the 2013 Asher Notes (defined below). During the six months ended June 30, 2014, the Company issued 4,849,217 shares of common stock upon conversion of the note and $696 of accrued and unpaid interest. As of June 30, 2014, the note has been fully satisfied. |
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On October 17, 2012, the Company issued a $25,000 convertible promissory note to Continental Equities, LLC (“Continental”). On March 26, 2013, Carebourn acquired the Continental note from Continental. During the year ended December 31, 2013, the Company issued 18,737,288 shares of common stock to Carebourn Partners, LLC. (“Carebourn Partners”) and Carebourn Partners’ assignee upon the conversion of the acquired Continental note. During the six months ended June 30, 2014, the Company issued 5,414,365 shares of common stock for $3,411 of accrued and unpaid interest. As of June 30, 2014, the note has been fully satisfied. |
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On October 24 and 29, 2012, the Company issued convertible promissory notes of $9,000 and $16,000 (“the 2012 Gel Notes”) respectively, to GEL Properties, LLC (“Gel”) The conversion price for the 2012 Gel Notes was equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share, for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares had not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest were also subject to conversion. No fractional shares or scrip representing fractions of shares were to be issued on conversion, but the number of shares issuable were to be rounded to the nearest whole share. Also in October 2012, the Company issued four (4) additional notes to Gel in the aggregate, as amended, $85,000, and Gel issued the Company four secured promissory notes, one for $25,000 and three each in the amount of $20,000, initially due June 21, 2013. Gel funded $65,000 of the notes to the Company during the year ended December 31, 2013, and the remaining $20,000 was funded on January 28, 2014. During the year ended December 31, 2013, the Company issued 288,467,551 shares of common stock in satisfaction of $63,145 of the Gel 2012 Notes. As of December 31, 2013, the Company had $26,855 of principal amounts outstanding to Gel. During the six months ended June 30, 2014, the Company issued 314,508,480 shares of common stock in satisfaction of $46,855 of the 2012 Gel Notes. As of June 30, 2014, the 2012 Gel Notes have been satisfied. |
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On November 1, 2012, the Company issued a convertible promissory note to David Schaper (“Schaper”) in the amount of $269,858 in exchange for previously accrued legal fees. The note bears interest at 8% per annum and is convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. During the year ended December 31, 2013, the Company issued 419,203,501 shares of common stock upon the conversion of $103,188 of the Note. As of December 31, 2013, the balance of the note was $166,670. During the six months ended June 30, 2014, the Company issued 1,344,201,542 shares of common stock upon the conversion of $163,670 of the Note. As of June 30, 2014, the balance of the note is $3,000. |
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2013 Notes |
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On March 14, 2013 the Company issued a convertible promissory note for $46,000 to an accredited investor (the “March 2013 Note”). The March 2013 Note, was due eight months from issuance and bears an interest rate of 8% per annum, and in the case of an event of default increases to 12% per annum (“the Default Rate”). The conversion feature of the 2013 Note is a 50% discount to the average of the three lowest day closing bid prices for the ten trading days prior to conversion. The March 2013 Note matured November 14, 2013, is in default, and the Default Rate was effective at that date. During the six months ended June 30, 2014, the Company issued 78,000,000 shares of common stock upon conversion of $3,900 of the note. The balance of the March 2013 Note is $42,100 as of June 30, 2014. |
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The following notes issued in 2013, bear interest at 8% per annum and other than as described below are convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. The notes issued in 2013 are referred to as the 2013 Notes. |
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On April 8, 2013, the Company issued a convertible promissory note to Schaper for $5,000. During the six months ended June 30, 2014, the Company issued 100,000,000 shares of common stock upon the conversion of the note. As of June 30, 2014, the note has been satisfied. |
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On April 26, 2013, the Company issued a convertible promissory note for $50,000 to an unaffiliated accredited investor. During the six months ended June 30, 2014, the Company issued 167,359,375 shares of common stock upon the conversion of the note and $3,555 of accrued and unpaid interest. As of June 30, 2014, the note has been fully satisfied. |
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On June 6, 2013 ($12,000), July 12, 2013 ($12,500) and August 9, 2013 ($6,250) the Company issued convertible promissory notes to Carebourn Partners. During the six months ended June 30, 2014, the Company issued 86,757,922 shares of common stock upon the conversion of these notes and $1,024 of accrued and unpaid interest. As of June 30, 2014, the note has been satisfied. |
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On August 9, 2013, the Company issued a $6,250 note to Linrick Industries, LLC. During the six months ended June 30, 2014, the Company issued 10,268,561 shares of common stock upon the conversion of the note and $250 of accrued and unpaid interest in full satisfaction of this note. |
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On August 22, 2013, the Company issued a $6,000 convertible promissory note to Schaper. During the six months ended June 30, 2014, the Company issued 40,000,000 shares of common stock upon conversion of $4,000 of this note. The outstanding principal balance on this note is $2,000 as of June 30, 2014. |
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On September 3, 2013 ($32,500) and October 17, 2013 ($37,500), the Company issued convertible promissory notes to Asher Enterprises, Inc. (“Asher” and “2013 Asher Notes”). Among other terms the 2013 Asher Notes are due nine months from their issuance date, bear interest at 8% per annum, are payable in cash or shares at the Conversion Price as defined herewith, and are convertible at a conversion price (the “Conversion Price”) for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. Upon the occurrence of an event of default, as defined in the Note, the Company is required to pay interest at 22% per annum and the holders may at their option declare the 2013 Notes, together with accrued and unpaid interest, to be immediately due and payable. In addition, the 2013 Notes provide for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company. During the six months ended June 30, 2014, the Company issued 114,682,540 shares of common stock upon conversion of $70,000 of the notes and $2,800 of accrued and unpaid interest. As of June 30, 2014, these notes have been satisfied. |
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On October 7, 2013, the Company issued a $3,500 convertible note to AU Funding, LLC in exchange for the cancellation of accounts payable of $3,500. During the six months ended June 30, 2014, the Company issued 75,676,800 shares of common stock upon the conversion of the note and $284 of accrued and unpaid interest in full satisfaction of this note. |
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On October 7, 2013, the Company issued a $5,000 convertible note to Corizona Mining Partners, LLC in exchange for the cancellation of $5,000 of accounts payable. During the six months ended June 30, 2014, the Company issued 100,000,000 shares upon conversion of the note. As of June 30, 2014, the note has been fully satisfied. |
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On October 18, 2013, the Company issued four (4) convertible notes each in the amount of $25,625 to Gel (the 2013 Gel Notes). The conversion price for the 2013 Gel Notes is equal to 50% of the lowest closing bid price of the Common Stock as reported on the exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future with a floor of $0.0001 per share, for any of the five trading days including the day upon which a Notice of Conversion is received by the Company. If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. Also on October 18, 2013, Gel issued the Company four secured promissory notes, each in the amount of $25,000, due April 21, 2014. The Company received the $100,000 on March 6, 2014. During the six months ended June 30, 2014, the Company issued 237,777,779 shares upon conversion of $46,000 of the notes. As of June 30, 2014, the four convertible promissory notes in the aggregate of $56,500 of principal amount owed Gel was outstanding. |
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On November 19, 2013, the Company issued a $16,500 convertible note to Carebourn Capital L.P. During the six months ended June 30, 2014, the Company issued 67,766,920 shares upon the conversion of the note. As of June 30, 2014, the note has been satisfied. |
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On November 22, 2013, the Company issued a $35,000 (the Fong Note) and $30,000 (the Hollander Note) convertible note to Mr. Fong and Mr. Hollander, respectively, for the cancellation of accrued and unpaid fees. During the six months ended June 30, 2014, the Company issued 230,000,000 shares of common stock in satisfaction of $22,000 of the Hollander note. The outstanding principal balances of the Fong and Hollander notes as of June 30, 2014 are $35,000 and $8,000 respectively. |
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2014 Notes |
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On January 28, 2014, the Company issued a convertible promissory note to Mr. Fong for $25,500 in satisfaction of accrued and unpaid fees due Mr. Fong. Also on January 28, 2014, the Company entered into a Debt Settlement and Release Agreement (the “DSR”) with Mr. Fong and Mary Virginia Knight (“Knight”) or Knight assigns. Pursuant to the DSR, the Company has issued 300,000,000 shares of common stock to the Knight assign, in cancellation and satisfaction of $15,000 of the convertible note due Mr. Fong. As of June 30, 2014, the outstanding principal balance of this note is $10,500. |
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On February 10, 2014, the Company issued two (2) convertible promissory notes in the amounts of $95,814 and $95,813 in exchange for previously accrued legal fees. The notes bear interest at 8% per annum and are convertible at a conversion price for each share of common stock equal to 50% of the average of the lowest three trading prices (as defined in the note agreements) per share of the Company’s common stock for the ten trading days immediately preceding the date of conversion. As of June 30, 2014, the balances of the notes are outstanding. |
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On February 4, 2014 ($32,500) and March 5, 2014 ($27,500), the Company issued convertible promissory notes to Asher, under the same terms and conditions as the 2013 Asher Notes. The Company received $55,000 cash after debt issuance costs of $5,000. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $2,500 and $3,611 has been expensed as debt issuance costs (included in interest expense) for the three and six months ended June 30, 2014, respectively. As of June 30, 2014, the outstanding principal balance of these notes is $60,000. |
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On February 20, 2014, the Company issued two (2) convertible promissory notes, each in the amount of $40,000 to LG Capital (“LG”). The Company received $38,000 cash and a $40,000 secured promissory note after debt issuance costs of $2,000. The debt issuance costs will be amortized over the earlier of the twelve month term of the Note or any redemptions and accordingly $1,000 and $1,389 has been expensed as debt issuance costs (included in interest expense) for the three and six months ended June 30, 2014, respectively. As of June 30, 2014, the outstanding principal balance of these notes is $80,000. |
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On March 3, 2014, the Company issued a $52,500 convertible promissory note to Carebourn Capital. The note is due on demand, bears interest at 8% and is convertible at a 50% discount of the average of the three lowest day’s closing prices for the ten (10) days preceding conversion. The conversion price cannot exceed $0.0035 (250% of the market price as of the date of the executed term sheet by the parties). The Company received $50,000 after debt issuance costs of $2,500 which will be amortized over the six month term of the Note or any redemptions and accordingly $1,250 and $1,625 has been expensed as debt issuance costs (included in interest expense) for the three and six months ended June 30, 2014, respectively. As of June 30, 2014, the outstanding principal balance of this note is $52,500. |
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On March 6, 2014 the Company issued a $50,000 convertible promissory note to Gel, under the same terms and conditions as the 2012 Gel Notes. As of June 30, 2014, the outstanding principal balance of this note is $50,000. |
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On March 27, 2014, the Company issued an $831,000 secured convertible promissory note (the “Note”) to Typenex (the “Lender”). The Typenex Note carries an original issuer discount of $75,000. In addition, the Company agreed to pay $6,000 to cover the Lender’s legal and other fees. At the option of the Lender, the note converts at $0.0025 per share. The conversion by the Lender of any portion of the Outstanding Balance shall only be exercisable in ten (10) tranches (each, a “Tranche”), consisting of an initial Tranche in an amount equal to $88,500 and nine (9) additional Tranches, each in the amount of $82,500, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note. The Note carries a ten % interest rate and matures on the seventeenth month after funding. Typenex funded $75,000 on April 1, 2014 (the “Funding Date”) and also delivered nine (9) secured promissory notes to the Company, each in the amount of $75,000. Each payment received will constitute an “Issue Date”. The Company also granted Typenex the right to purchase at any time on or after each Issue Date until the date which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration Date”), a number of fully paid and non-assessable shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share equal to $41,250 divided by 55% of the average of the three lowest days closing price, with an exercise price of $0.0025. As of the Funding Date, the approximate warrant value based on the Black Scholes warrant calculation formula was $85,700. The Company recorded the amount as a discount to the convertible promissory note and will amortize the discount to interest expense over the life of the loan. For the three months ended June 30, 2014, the Company expensed $22,872, included in interest expense. The recalculated warrant value as of June 30, 2014 was $93,721 and the Company recorded an expense of $8,012 included in derivative liability expense as of June 30, 2014. |
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Pursuant to certain defaults and remedies clauses contained in the terms and conditions of the Typenex Note, the Company estimated the value of the conversion feature to be $474,000 based on the Black Scholes formula. The calculation included the conversion factor to be 55% of the average of the lowest three days closing prices of the 20 trading days immediately preceding conversion. The Company recorded the $474,000 as a discount to the Typenex Note and will amortize the discount to interest expense, over the life of the loan. For the three and six months ended June 30, 2014, the Company recorded interest expense of $123,240. The Company revalued the conversion feature as of June 30, 2014 to be $100,765 and recorded a credit to derivative liability expense of $373,235, the change in fair value of the convertible note. |
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On April 1, 2014 ($15,000) and April 23, 2014 ($12,500), the Company issued convertible promissory notes to Carebourn Capital. The notes bear interest at 8$ per annum and mature nine months from the date of issuance. The conversion price of the notes is equal to a 50% discount to the average of the three lowest day closing prices for the ten trading days immediately preceding conversion. As of June 30, 2014, the principal balance of the notes remain outstanding. |
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On May 16, 2014, the Company issued a $27,000 convertible promissory note, bearing interest at 12% per annum, to WHC Capital, LLC (“WHC”). Pursuant to the terms of the note, WHC conversion price will be equal to 50% of the lowest intra-day trading price for the Company’s common stock during the twenty trading days immediately preceding a conversion. The Company received $25,000 after debt issuance costs of $2,000, which will be amortized over the earlier of the one year term of the Note or any redemptions. Accordingly, $533 has been expensed for the three and six months ended June 30, 2014, as debt issuance costs (included in interest expense). As of June 30, 2014, the principal balance of $27,000 remains outstanding. |
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The Company has determined that the conversion features of the 2012, 2013 and 2014 Notes represent embedded derivatives since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the Notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion features must be bifurcated from the debt hosts and accounted for as derivative liabilities. Accordingly, the fair value of these derivative instruments have been recorded as liabilities on the consolidated balance sheet with the corresponding amounts recorded as a discounts to the Notes. Such discounts will be accreted from the date of issuance to the maturity dates of the Notes. The change in the fair value of the liabilities for derivative contracts will be recorded to other income or expenses in the consolidated statement of operations at the end of each quarter, with the offset to the derivative liability on the balance sheet. |
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The fair value of the conversion features embedded in the 2014 Notes as of their dates of issuance and in their entirety as of June 30, 2014 was determined to approximate their fair intrinsic value due to the terms of conversion. |
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The inputs used to estimate the fair value of the derivative liabilities are considered to be level 1 inputs within the fair value hierarchy. |
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A summary of the derivative liabilities related to convertible notes as of December 31, 2013 and June 30, 2014 is as follows: |
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Fair Value | | Derivative Liability Balance | | Initial Derivative Liability | | Redeemed convertible notes | | Fair value change - six months ended 6/30/14 | | Derivative Liability Balance 6/30/14 |
1/1/14 |
2012 Notes | | $ | 172,602 | | | | — | | | $ | (168,670 | ) | | $ | 2,068 | | | $ | 6,000 | |
2013 Notes | | $ | 363,260 | | | $ | 103,000 | | | $ | (364,589 | ) | | $ | 2,024 | | | $ | 103,695 | |
2014 Notes | | | — | | | $ | 1,115,032 | | | | — | | | $ | (341,324 | ) | | $ | 773,708 | |
Total | | $ | 535,862 | | | $ | 1,268,827 | * | | $ | (533.259 | ) | | $ | (337,232 | ) | | $ | 833,403 | |
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| · | Expenses of $24,205 related to the initial derivative liability, equal to the excess of the liabilities over the face value of the related notes is included in derivative liability income of $313,027 for the six months ended June 30, 2014. | | | | | | | | | | | | | | | | | | |
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A summary of debentures payable as of December 31, 2013 and June 30, 2014 is as follows: |
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Face Value | | Balances | | Issuance of new convertible notes | | Amortization of discount on convertible | | Debenture conversions six months ended 6/30/14 | | Balances |
1/1/14 | Notes | 6/30/14 |
2012 Notes | | $ | 171,670 | | | | — | | | | — | | | $ | 168,670 | | | $ | 3,000 | |
2013 Notes | | $ | 349,255 | | | $ | 102,500 | | | | — | | | $ | 340,155 | | | $ | 111,600 | |
2014 Notes | | | — | | | $ | 1,365,127 | | | | — | | | | — | | | $ | 1,365,127 | |
Note discount | | $ | (187,843 | ) | | $ | (1,268,827 | ) | | $ | 822,854 | | | | — | | | $ | (633,816 | ) |
Total | | $ | 333,082 | | | $ | 758,500 | | | $ | 677,333 | | | $ | 508,825 | | | $ | 845,911 | |
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