Convertible Debentures

9 Months Ended

Sep. 30, 2015

Convertible Debt [Abstract]

Convertible Debentures

Note 6. Convertible Debentures

At September 30, 2015, the Company had convertible debentures totaling $127,600 outstanding, of which $32,600 are due during the third quarter of 2016 and $95,000 are due during the third quarter of 2017. The convertible debentures bear interest at 7%. At the option of the lender, the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.025 per share. In July 2015, the Company repaid, with interest, a $10,000 convertible debenture that had matured. During the third quarter of 2015, the Company’s Board of Directors approved and the holders of $95,000 of convertible debentures maturing during the third quarter of 2015 accepted an offer of extension whereby the maturity dates of the convertible debentures are extended for two years and the conversion rate of the debentures and accrued interest into Common Stock of the Company is reduced from $0.05 to $0.025. In accordance with FASB ASC 470, this modification of the convertible debentures was recorded as a debt discount to the notes payable of approximately $18,100 with an offsetting credit to additional-paid in capital. In the three months and nine months ended September 30, 2015, the entire $18,100 was accreted through interest expense.

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 and nine months ended September 30, 2015, approximately $300 and $2,900, respectively, was accreted through interest expense. For the three months and nine months ended September 30, 2014, approximately $1,300 and $3,400, respectively, was accreted through interest expense.

The following table summarizes all warrant activity of the Company since 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		46,000	$0.06 and $0.07	$	0.068
Outstanding warrants - September 30, 2015		756,365	$0.01 to $0.07	$	0.022
Weighted average remaining contractual life (years)		4.76
Exercisable warrants - September 30, 2015		590,000	$0.01 to $0.07	$	0.023
Weighted average remaining contractual life (years)		4.48