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Notes Payable and Long-Term Debt
6 Months Ended
Jun. 30, 2014
Debt Disclosure [Abstract]  
Notes Payable and Long-Term Debt

3. Notes Payable and Long-Term Debt

 

As described in detail in our Form 10-K for the year ended December 31, 2013, we issued convertible notes from 2009 through 2013. Additional convertible notes with a face amount of $236,250 were issued in the six months ended June 30, 2014. One of these notes in the amount of $75,000 was issued to the Company’s former chief financial officer in a noncash transaction in connection with an overall release and settlement agreement related to the termination of the CFO’s employment. The note is due the earlier of December 31, 2014, or upon completion of the Company’s proposed business combination (as discussed further in Note 6) and is payable in cash or with 1.5 million shares of stock in the new entity, at the option of the Company. In addition, $50,000 of these notes were issued to Directors of the Company and $10,000 to individuals that are proposed Directors of the Company if the business combination is completed. These notes are due July 15, 2015, bear interest at a rate of 8%, and are convertible into common stock at a discount of 25% from the market price of the common stock at the time of conversion. If the proposed business combination occurs, the notes will be automatically convertible into common stock of the merged entity under the same terms.

 

As of June 30, 2014, there are notes with a total face amount of $1,909,355 outstanding. These notes are due at dates throughout 2014 and through July 2015. These notes bear interest at rates ranging from less than 1% to 8%, and $21,297 of the notes outstanding included a 10% original issuance discount. The notes are convertible at fixed rates ranging from $0.05 to $0.10 per share and $121,297 of the face amount of the notes are convertible at floating rates based on discounts of 25% - 30% to the market price of our common stock at the date of conversion.

 

At the time of issuance, the value of the beneficial conversion feature of these notes is calculated, recorded as a discount to the note, and amortized to expense over the term of the note. If the notes are converted before maturity, any unamortized expense at the time of conversion is expensed at the time of conversion. As of June 30, 2014, there is $39,238 of unamortized discount remaining to be amortized in future periods during 2014 and 2015. During the period ended June 30, 2014, the Company amended notes payable with a total face amount of $1,713,058 that were past due at the time to extend the due date to August 15, 2014 and provide for automatic conversion if the business combination is completed. To induce the note holders to agree to automatic conversion, the conversion price was lowered in most instances. The conversion price for $760,000 of these notes was lowered to $0.05 per share, to $0.10 per share for $915,058 of these notes, and the conversion price remained unchanged at $0.08 per share for the remaining $38,000 of notes.

 

A total of $1,252,756 and $756,110 of discount was amortized to interest expense during the six month periods ending June 30, 2014 and 2013, respectively. Included in these amounts are charges related to lowering the conversion price of $1,136,584 and $408,132 in the six months ended June 30, 2014 and June 30, 2013, respectively.