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Subsequent Events
12 Months Ended
Dec. 31, 2012
Subsequent Events [Abstract]  
Subsequent Events

Note 14: Subsequent Events

 

Convertible Debentures and Warrants

 

From January through March 2013, the Company sold $738,947 of 5% Original Issue Discount Unsecured Convertible Debentures (the “Debentures”) to accredited investors for aggregate consideration of $702,000. The Debentures mature in six months, carry a fixed conversion price of $0.0573 per share, an annual interest rate of 20% and are convertible into 12,896,115 shares of common stock at maturity. The Company received net cash proceeds of approximately $544,000 after payment of fees and expenses of approximately $158,000. In addition, the Company issued the holders of the Debentures (the “Holders”) detachable five-year warrants to purchase 6,448,057 additional shares of common stock and issued to the placement agent of the offering (the “Agent”) warrants to purchase 1,934,417 shares of common stock all at an exercise price of $0.0745 per share. The fair value of the Agent warrants, as determined using the Black-Scholes option-pricing model, was approximately $108,000. The embedded conversion feature of the Debentures and the terms of the detachable warrants provide for an effective rate of conversion that was below market value at issuance. Such an element is characterized as BCF. Pursuant to accounting standards at the time of issuance, the estimated aggregate fair values of the BCF and the Holders’ warrants using the Black Scholes option pricing model were determined to be approximately $794,000, approximately $105,000 of which will be immediately recognized as interest expense and approximately $689,000 which will be recorded as a debt discount and then amortized as interest expense over the life of the relevant instrument.

 

Common Stock

 

In January 2013, the Company issued 1,500,000 shares of restricted common stock each to two vendors for services. The fair value of each issuance was determined to be $120,000, based upon the Market Value of the stock on the date of issuance.

 

Subsequent events have been evaluated through the date financial statements are filed with the Securities and Exchange Commission.