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Convertible Promissory Notes
9 Months Ended
Sep. 30, 2014
Debt Disclosure [Abstract]  
Convertible Promissory Notes

On October 25, 2013 and November 4, 2013, the Company closed a private placement of 10 Units to a total of 2 investors, each Unit consisting of (i) a 13-month $50,000 principal amount promissory note (“Promissory Note”) bearing an annual interest rate of 7%, convertible at the holders’ option to common stock at the rate of $1.25 per share and (ii) a four-year callable Warrant (the "Promissory Note Warrants"), to purchase 20,000 shares of common stock.  The Company received gross proceeds of $500,000.

 

The Promissory Notes are also contingently mandatorily convertible at a conversion price that is the lesser of i) 25% discount to the effective price sold in the consummation of an equity, or convertible debt financing in one or more series of transactions with aggregate gross proceeds of at least $3,000,000 or ii) $1.25 per share of common stock.

 

The Company, upon five-day notice to holders of outstanding Promissory Note Warrants, has the right, subject to limitations, to call all or any portion of the Warrants then outstanding if (i) the VWAP for each of ten (10) consecutive trading days equals or exceeds $4.50 per share and (ii) has a minimum trading volume of 50,000 shares per day over the same period.  These warrants were valued at $118,000 in aggregate and were classified as equity instruments. The Company elected the fair value option for the notes payable as this option better represents the economics and fair value of notes payable. The decision to elect the fair value option, which is irrevocable once elected, is determined on an instrument by instrument basis and applied to an entire instrument. The Company recognized a $245,856 net change in fair value of financial instruments on the condensed consolidated statements of operations from October 25, 2013 through February 11, 2014.  On February 11, 2014, the holders of the Promissory Notes converted their holdings into 226,655 shares of Series C Preferred Stock.