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Convertible Debentures
12 Months Ended
Dec. 31, 2014
Convertible Debt [Abstract]  
Convertible Debentures

7. Convertible Debentures


During the third quarter of 2013, the Company received $105,000 through the issuance of convertible debentures to six individual investors and a trust. The debentures bear interest at 7% and are due and payable two years from the date of issuance. Proceeds of the debenture issuance were used to finance the Company’s working capital requirements. At option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.05 per share. The Company also granted warrants to purchase 525,000 shares of the Company’s common stock at $0.02 per share to the holders of the debentures. The warrants are exercisable two years after issuance and expire seven years after issuance.


The fair value of the warrants of approximately $9,100 was determined using the Black-Scholes pricing model. The relative fair value of the warrants was approximately $8,300 and was recorded as a discount to the notes payable with an offsetting credit to additional paid-in capital since the Company determined that the warrants were an equity instrument in accordance with FASB ASC 815. The debt discount related to the warrant issuances is being accreted through interest expense over the term of the notes payable. For the years ended December 31, 2014 and 2013, approximately $4,200 and $2,100, respectively, was accreted through interest expense.


During the third quarter of 2014, the Company, with the approval of its Board of Directors, exchanged two demand loans totaling $24,500 including one demand loan in the amount of $4,500 held by Herman M. Gerwitz, a Director, along with approximately $3,800 of accrued interest for convertible debentures totaling approximately $28,300. The debentures bear interest at 7% and are due and payable two years from the date of issuance. At option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.05 per share. The Company also granted warrants to purchase approximately 141,400 shares of common stock of the Company at $0.02 per share to the debenture holders. The warrants are exercisable two years after issuance and expire seven years after issuance.

 

During the third quarter of 2014, the Company received $5,000 through the issuance of a convertible debenture to an investor. The debenture bears interest at 7% and is due and payable two years from the date of issuance. At option of the lender, the debenture and accrued interest are convertible in whole or part into common stock of the Company at $0.05 per share. The Company also granted warrants to purchase 25,000 shares of the Company’s common stock at $0.02 per share to the holder of the debenture. The warrants are exercisable two years after issuance and expire seven years after issuance.


The fair value of the approximately 166,400 warrants issued in the third quarter of 2014 of approximately $2,000 was determined using the Black-Scholes pricing model. The relative fair value of the warrants was approximately $1,900 and was recorded as a discount to the notes payable with an offsetting credit to additional paid-in capital since the Company determined that the warrants were an equity instrument in accordance with FASB ASC 815. The debt discount related to the warrant issuances is being accreted through interest expense over the term of the notes payable. For the year ended December 31, 2014, approximately $500 was accreted through interest expense.