Convertible Debentures

3 Months Ended

Mar. 31, 2015

Convertible Debt [Abstract]

Convertible Debentures

Note 6. Convertible Debentures

At March 31, 2015, the Company had convertible debentures totaling $138,300 outstanding, of which $105,000 are due during the third quarter of 2015 and $33,300 are due during the third quarter of 2016. The convertible debentures bear interest at 7%. 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 691,365 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 was determined using the Black-Scholes pricing model. The relative fair value of the warrants 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 three months ended March 31, 2015 and 2014, approximately $1,400 and $1,000, respectively, was accreted through interest expense.

The following table summarizes the Company’s warrant position at March 31, 2015 and December 31, 2014:

				Weighted
				Average
	Number		Exercise	Exercise
	of Shares		Price	Price
Outstanding warrants - December 31, 2014		802,365	$0.01 to $0.07	$	0.025
Warrants expired		36,000	$0.07	$	0.07
Outstanding warrants - March 31, 2015		766,365	$0.01 to $0.07	$	0.023
Weighted average remaining contractual life (years)		5.19
Exercisable warrants - March 31, 2015		75,000	$0.01 to $0.07	$	0.047
Weighted average remaining contractual life (years)		1.61