Convertible Debt

6 Months Ended

Jun. 30, 2014

Note 3 – Convertible Debt

Fishbone Notes

On February 3, 2012, the Company issued two convertible promissory notes, in the aggregate principal amount of $1,283,126 (the “Notes”), to the owners of Fishbone Solutions, Ltd. (“Fishbone”), in exchange for all of the equity interests in Fishbone. On the closing date of the acquisition of Fishbone, the Company issued the Notes to the equity-holders of Fishbone in the proportional principal amounts directed by the equity-holders. The Notes accrue interest at the rate of 0.19% per annum, and the principal and accrued interest of the Notes are payable only through the conversion of the Notes into shares of the Company’s common stock, par value $ 0.00001 per share (“Common Stock”), at $0.12 per share.

Pursuant to the terms of the Notes, the Fishbone equity-holders agreed to limit conversions and sales of the Common Stock issued by the Company upon conversion of the Notes as follows:

(a)	No conversions or sales until the one year anniversary of the issuance of the Notes (February 3, 2013);
(b)	No more than fifteen percent (15%) of the principal amount and accrued interest of each Note from the one year anniversary through the day before the two year anniversary of the issuance of the Notes (February 3, 2014);

(c)	An additional fifteen percent (15%) from the two year anniversary until the day before the three year anniversary of the issuance of the Notes; (February 3, 2015); and
(d)	The entire remaining balance of principal and accrued interest and unpaid interest becoming due, and the Notes automatically converting, on the three year anniversary of issuance of the Notes, at which time all limitations on sale by the holders of the Notes will be lifted.

The Notes may also become due and fully convertible in the event of a liquidation event or change of control of the Company. During 2013, the Company sold substantially all of the assets of Fishbone and two other subsidiaries of the Company, pursuant to which the buyer assumed $597,000 in principal amount of the Notes and $103,649 in principal amount the Notes, plus accrued interest of $2,087, was converted into Common Stock at $0.12 per share. On February 6, 2014, the Company issued 1,861,240 shares of Common Stock upon the conversion of $223,349 in principal and $103 in accrued interest of the remaining Note.

The Company’s outstanding convertible debt was $362,622 as of June 30, 2014 and $585,971 as of December 31, 2013.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details

Texas Gulf Energy Inc 10-Q