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Note 7 - Debt
9 Months Ended
Sep. 30, 2013
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]

7. Debt


On August 15, 2013, the Company entered into a securities purchase agreement with Asher Enterprises, Inc. (“Asher”) pursuant to which it sold to Asher an 8% convertible note in the aggregate principal amount of $78,500, convertible into shares of the Company’s common stock upon the terms and subject to the limitations and conditions set forth in the convertible note. The variable conversion price of the debt created a derivative instrument. The Company recorded the derivative liability of $79,418, which was offset by a debt discount of $78,500 and fair value loss on derivative of $918. The derivative liability is adjusted to fair value at each reporting period with gains or losses recognized as a component of other (income) loss in the statements of comprehensive income. The debt discount is being amortized using the straight-line method over the life of the debt of 8.5 months.


On August 21, 2013, the Company entered into a revolving credit and security agreement with JJJ Family LLLP (“JJJ Family”) pursuant to which it can borrow up to $400,000 from JJJ Family. In connection with this transaction, we issued a revolving promissory note to JJJ Family in the principal amount of $400,000. Borrowings under the credit facility will be used for general corporate purposes.


As additional consideration for this credit facility, the Company also entered into a warrant agreement with JJJ Family to allow them to purchase up to 400,000 shares of our common stock at an exercise price of $0.14 per share. These warrants become exercisable beginning six months after the issuance date and ending five years from that date. The exercise price is subject to certain conditions and adjustments that make the exercise price variable. This variability in the exercise price of the warrants created a derivative instrument. The Company recorded a derivative liability in the amount of $43,000 with an offset to debt discount. The derivative liability is adjusted to fair value at each reporting period with gains or losses recognized as a component of other (income) loss in the statements of comprehensive income. The debt discount is being amortized using the straight-line method over the life of the debt of 12 months.


The Company also agreed to amend the exercise price of all outstanding options and warrants previously granted to JJJ Family to $0.14 per share. The Company valued the repricing of the options and warrants using the Black-Scholes option pricing model, which resulted in the Company recording additional financing costs of $37,000. These financing costs are included as a component of interest expense during the three and nine months ended September 30, 2013.