STOCKHOLDERS DEFICIT

9 Months Ended

Sep. 30, 2016

STOCKHOLDERS DEFICIT [Text Block]

NOTE 10 – STOCKHOLDERS’ DEFICIT

On March 2, 2016, the Board of Directors approved and recommended the approval by the stockholders, to undergo a reverse stock split of each class of shares which includes the shares of common stock, the Series A Preferred Stock and the Series B Preferred Stock by a ratio of 200 to 1 for each class of shares. The par value of each class of shares shall remain unchanged. The Series A Preferred Stock and Series B Preferred Stock voting rights per share shall remain unchanged. The reverse stock split became effective on July 15, 2016. All share amounts and per share amounts have been retrospectively restated to reflect the reverse stock split.

During the nine months ended September 30, 2016, the Company issued a total of 12,805,000 shares of common stock to a shareholder-creditor for payment of outstanding loans. The fair value of the shares was $1,402,396 based on the market price on the date of grant which settled loans payable shareholders of $270,893. Accordingly, the Company recognized a loss on settlement in the amount of $1,131,503.

The Company issued 24,396,448 shares to lenders for conversion of $202,394 of debt and payment of $3,000 in fees and $215 in interest.

The Company issued 500,000 shares to a consultant for fair value of $59,000 recorded as stock-based compensation.

The Company cancelled 9,750 common shares issued in 2014 and 750 shares issued in 2015 in exchange for 759,750 warrants with a 5 -year term and an exercise price of $0.001 valued on the original grant date, of which $151,950 was reclassified from common stock to additional paid-in capital in 2016. The Company issued 214 shares to shareholders for fractional shares as a result of the conversion.

As part of its extension of its licenses (see Note 3), the Company issued 11,200 Series B Preferred Shares and 786,500 Series B Preferred Share warrants with an exercise price of $0.001 and a 10 -year maturity with a total fair value of $502,104.

Warrants

During the nine months ended September 30, 2016, the Company issued and then later cancelled 8,100,000 warrants to a shareholder to repay loans payable to shareholders with a fair value of $3,380,000 (original recorded as an adjustment to loans payable - shareholder of $531,000 and loss on settlement of debt of $2,849,000 but then reversed); cancelled an additional 1,500,000 warrants to the same shareholder-creditor originally issued in December 2015 reinstating the accounts payable - related party of $90,000 and reversing the loss on settlement of $390,000, 75,000 warrants issued to a convertible note holder as part of the derivative liability for a fair value of $151,755 ; 759,750 ( 151,950,000 warrants before reverse stock split) warrants to shareholder in exchange for the cancellation of 759,750 ( 151,950,000 warrants before reverse stock split) shares for consideration of $151,950, all with a corresponding increase in additional paid-in capital valued using the Black-Scholes option pricing model according to the following assumptions:

Expected volatility	176.4%
Exercise price	$0.002
Stock price	$0.42 -
Expected life	5 years
Risk-free interest rate	1.23%
Dividend yield	0%

A summary of the activity in the Company's warrants during the nine months ended September 30, 2016 is presented below:

	Number of			Weighted Average
	Warrants			Exercise Price
Outstanding and exercisable, at December 31, 2015	1,734,176		$	0.36
Issued	8,934,750		$	0.00
Cancellation of warrants	(9,600,000	)	$	0.00
Outstanding and exercisable, at September 30, 2016	1,068,926		$	0.00

The intrinsic value of warrants outstanding at September 30, 2016 was $8,453.

Contingent Warrant Issuance

On July 20, 2012, the Company’s board of directors approved the issuance of 1,500 ( 300,000 warrants before reverse stock split) warrants with an exercise price of $0.001 per share and a five-year life from date of issuance to the Company’s President, Joseph Kristul, contingent upon his successful negotiation of a major sales contract. The major sales contract agreement has not yet been consummated by the Company.