Convertible Debentures

9 Months Ended

Sep. 30, 2016

Convertible Debt [Abstract]

Convertible Debentures

Note 5. Convertible Debentures

At September 30, 2016, the Company had convertible debentures totaling $128,300 outstanding, of which $33,300 were 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, $95,000 in principal of the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.025 per share and $33,300 principal of the debentures and accrued interest are convertible in whole or part into common stock of the Company at $0.05 per share. In July 2015, the Company repaid, with interest, a $10,000 convertible debenture that had matured. During the third quarter of 2015, $95,000 of convertible debentures matured. The Company’s Board of Directors approved and the holders the convertible debentures accepted an offer of extension whereby (i) the maturity dates of the convertible debentures were extended for two years and (ii) the conversion rate of the debentures plus accrued interest into Common Stock was 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 is additionally negotiating the extension of the three convertible debentures totaling $33,300 that matured during the third quarter of 2016, one of which is held by a Director of the Company. The Company believes that extensions of the debentures can be achieved on acceptable terms.

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 has been accreted through interest expense over the term of the notes payable. For the three months and nine months ended September 30, 2016, $0 and approximately $500, respectively, was accreted through interest expense. For the three months and nine months ended September 30, 2015, approximately $300 and $2,900, respectively, was accreted through interest expense.

The following table summarizes all warrant activity of the Company since December 31, 2015:

					Weighted Average
	Number		Exercise		Exercise
	of Shares		Price		Price
Outstanding warrants -
December 31, 2015		756,365	$	0.01 to $0.07	$	0.022
Warrants expired		15,000	$	0.06	$	0.06
Outstanding warrants -
September 30, 2016		741,365	$	0.01 to $0.07	$	0.021
Weighted average remaining
contractual life (years)		3.85
Exercisable warrants -
September 30, 2016		741,365	$	0.01 to $0.07	$	0.021
Weighted average remaining
contractual life (years)		3.85