Note 4: Debt

 

At June 30, 2013 and December 31, 2012, debt consists of the following:

 

 

Debt in default of $64,600 at June 30, 2013 and December 31, 2012 is included as a component of short-term debt.

 

Future annual principal payments for the above debt is as follows:

 

Convertible Debt – Secured - Derivative Liabilities

 

During the year ended December 31, 2012, the Company issued convertible debt totaling $519,950. The convertible debt includes the following terms:

 

 

The debt holders are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at the conversion prices and terms discussed above. The Company classifies embedded conversion features in these notes as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle or due to the existence of a ratchet due to an anti-dilution provision. See Note 5 regarding accounting for derivative liabilities.

 

 

Unsecured debt consisted of the following activity and terms:

 

 

(B) Vehicle Loan

 

Vehicle loan account consisted of the following activity and terms:

 

 

(C) Debt Issue Costs

 

During the six months ended June 30, 2012, the Company paid debt issue costs totaling $106,950.

 

For the year ended December 31, 2012, the Company issued 22,633 warrants as cost associated with a debt raise. The initial derivative liability value of $427,759 was recorded as debt issue costs and derivative liability.

 

The following is a summary of the Company’s debt issue costs for the six months ended June 30, 2013 and year ended December 31, 2012 as follows:

 

 

During the six months ended June 30, 2013 and 2012, the Company amortized $335,433 and $184,031, respectively in debt issue costs.

Note 4: Debt

 

At December 31, 2012 and 2011, debt consists of the following:

 

 

Debt in default of $64,600 and $505,600 at December 31, 2012 and 2011, respectively, is included as a component of short-term debt.

 

Future annual principal payments for the above debt is as follows:

 

 

Convertible Debt – Secured – Derivative Liabilities

 

During years ended December 31, 2012 and 2011, the Company issued convertible debt totaling $519,950 and $4,679,253, respectively. The convertible debt includes the following terms:

 

 

 

The debt holders are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at the conversion prices and terms discussed above. The Company classifies embedded conversion features in these notes as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle or due to the existence of a ratchet due to an anti-dilution provision. See Note 5 regarding accounting for derivative liabilities.

 

During the year ended December 31, 2012, the Company converted debt and accrued interest, totaling $1,420,422 into 290,961 shares of common stock. The resulting loss on conversion of $351,021 is included in the $4,447,732 loss on settlement of accounts payable and debt as shown in the consolidated statement of operations. During the year ended December 31, 2011, the Company converted debt and accrued interest, totaling $5,126,809 into 346,282 shares of common stock resulting in a loss on conversion of $1,739,329

 

During the year ended December 31, 2012, $14,000 of convertible notes matured without conversion. These notes became demand loans and were reclassified as unsecured debt. Derivative liabilities associated with these notes were eliminated given the expiration of the embedded conversion option. During the year ended December 31, 2011, $585,000 of convertible notes matured without conversion. These notes became demand loans and were reclassified as unsecured debt. Derivative liabilities associated with these notes were eliminated given the expiration of the embedded conversion option.

 

 

Convertible debt consisted of the following activity and terms:

 

 

 

Secured debt consisted of the following activity and terms:

 

 

 

Unsecured debt consisted of the following activity and terms:

 

 

 

(D) Vehicle Loan

 

Vehicle loan account consisted of the following activity and terms:

 

 

 

(E) Debt Issue Costs

 

During the years ended December 31, 2012 and 2011, the Company paid debt issue costs totaling $662,209 and $263,283, respectively.

 

For the year ended December 31, 2012, the Company issued 22,633 warrants as cost associated with a debt raise. The initial derivative liability value of $427,759 was recorded as debt issue costs and derivative liability.

 

The following is a summary of the Company’s debt issue costs for the years ended December 31, 2012 and 2011:

 

 

During the years ended December 31, 2012 and 2011, the Company amortized $394,964 and $229,499, respectively in debt issuance costs.

 

(F) Debt Discount

 

During the years ended December 31, 2012 and 2011, the Company recorded debt discounts totaling $3,554,673 and $5,473,291, respectively.

 

The debt discounts recorded in 2012 and 2011 pertain to convertible debt and warrants that contain embedded conversion options that are required to be bifurcated and reported at fair value.

 

The Company amortized $6,122,006 and $3,237,219 to interest expense in the years ended December 31, 2012 and 2011 as follows: