NOTE 11 - CONVERTIBLE DEBENTURES

9 Months Ended

Sep. 30, 2016

Convertible Debt [Abstract]

Convertible Debt [Text Block]

NOTE 11 – CONVERTIBLE DEBENTURES

In January 2016, the Company offered to accredited investors three-year, 9% convertible debentures (“Notes”) in the aggregate principal amount of up to $5,000,000. Each of the Notes is comprised of a convertible debenture which is payable or convertible to shares of the Company’s common stock at a conversion price equal to $0.70 per share. Each holder of a Note will receive a detachable warrant to purchase common stock of the Company with an exercise price of $0.75 per share equal to 20% of the number of shares issued at conversion. Each warrant will have a term of one-year post repayment or voluntary conversion, provided that the right to exercise the warrant will terminate upon the sale of all or substantially all of the assets of the Company or a merger of the Company, as defined by the warrant. As of September 30, 2016, the Company has received $80,000 in gross proceeds from the sale of Notes, prior to the amendment of their terms described below.

In accordance with applicable accounting guidance, the fair value of the conversion feature of the Notes and the accompanying warrants is bifurcated from the host instrument and recognized at fair value as a derivative liability on the Company’s consolidated balance sheet. The fair value of the warrants was calculated using the Black-Scholes model and was initially calculated as $6,857. After the allocation of proceeds between the warrants and the Notes was made, the calculation of the fair value of the conversion price was noted to exceed the fair value of the trading value of the stock and no derivative liability will be recorded at the inception of the Notes. The discount due to the fair value of the warrants will be recognized as additional interest expense over the term of the Notes.

In April 2016, the Company amended the terms of the Notes. As amended, each Note is comprised of a convertible debenture which is payable or convertible to shares of the Company’s common stock at a conversion price equal to $0.375 per share. Each holder of a Note will receive a detachable warrant to purchase common stock with an exercise price of $0.55 per share. Each warrant will have a term of one-year post repayment or voluntary conversion, provided that the right to exercise the warrant will terminate upon the sale of all or substantially all of the assets of the Company or a merger of the Company, as defined by the warrant. Under the amended terms, the Company has received additional gross proceeds of $389,955 from the sale of Notes as of September 30, 2016 and granted a warrant to purchase an aggregate 1,039,947 shares of common stock. The Company valued the warrant using the Black Scholes pricing model at $312,033. All of these convertible debentures were repaid in full in conjunction with the July 1, 2016 financing.