The Golden Lounge

[crashman]

Jim,
Have you ever seen debentures described as derivatives? seee bold below:

On September 18, 2007, the Company entered into a $500,000 Convertible Debenture ("September 2007 Debenture") Agreement with two individuals ("Holders"). The September 2007 debenture provides interest in an amount of 8% per annum and is convertible into the Company's common stock at the lesser of (a) 0.024 per share or (b) the amount of this debenture to be converted divided by 90% of the closing market price of the Maker's common stock for the day prior to the date of the exercise of such conversion right. Holder will be entitled to convert the debenture on the basis of the conversion price into the Company's common stock, provided that Holders cannot convert into shares that would cause Holder to own more 4.9% of the Company's outstanding common stock.

The $500,000 proceeds from the September 2007 debenture were received by Seaway Valley Fund, LLC (the "Fund"), a related party to the Company. The Fund is a wholly owned subsidiary of WiseBuys Stores Inc. WiseBuys acquired Seaway in 2006 from Thomas Scozzafava and Dierdre Scozzafava. Thomas Scozzafava owned approximately 50% of the capital stock of WiseBuys prior to the acquisition of WiseBuys by the Company on October 23, 2007. The Company planned to use the proceeds from the debentures to assist with the Hackett transaction.

The Company determined that the conversion feature of the assumed convertible debentures represent an embedded derivative since the debentures is convertible into a variable number of shares upon conversion. Accordingly, the assumed convertible debentures are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The embedded derivative feature created by the variable conversion meets the criteria of SFAS 133 and EITF 00-19, and should be accounted for as a separate derivative. At December 31, 2007 the fair value of the conversion derivative liability created by the assumed debentures calculated using the Black-Scholes model was $50,505. For the year ended December 31, 2007 the unrealized gain on the derivative instrument created by this debenture was $5,745