Quarterly report pursuant to Section 13 or 15(d)


9 Months Ended
Sep. 30, 2015
Notes to Financial Statements  

In September 2008, a FASB approved guidance related to the determination of whether a freestanding equity-linked instrument should be classified as equity or debt under the provisions of FASB ASC Topic No. 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Stock. The adoption of this requirement will affected accounting for convertible instruments and warrants with provisions that protect holders from declines in the stock price (“down-round” provisions). Warrants with such provisions are no longer recorded in equity and are reclassified as a liability.


Instruments with down-round protection are not considered indexed to a company’s own stock under ASC Topic 815, because neither the occurrence of a sale of common stock by the company at market nor the issuance of another equity-linked instrument with a lower strike price is an input to the fair value of a fixed-for-fixed option on equity shares.


In connection with the issuance of its 6% convertible debentures and related warrants, the Company has determined that the terms of the convertible warrants include down-round provisions under which the exercise price could be affected by future equity offerings. Accordingly, the warrants are accounted for as liabilities at the date of issuance and adjusted to fair value through earnings at each reporting date. The Company has recognized derivative liabilities of $4,594 and $0 at September 30, 2015 and December 31, 2014, respectively. The gain (loss) resulting from the decrease in fair value of this convertible instrument was $(163) and $ (325) for the three and nine months ended September 30, 2015, respectively.


The Company used the following assumptions for determining the fair value of the convertible instruments granted under the Black-Scholes option pricing model:


    September 30, 2015  
 Expected volatility     323 %
 Expected term - years   1.61  
 Risk-free interest rate     0.64 %
 Expected dividend yield     0 %