Note 5– Notes Payable

Notes payable consisted of the following as of:

	September 30, 2016			December 31, 2015
Notes payable	$	225,000		$	225,000
Convertible promissory note		200,000			200,000
Promissory note		50,000			50,000
Series A notes		3,002,500			3,002,500
Secured bridge notes		943,370			943,370
Convertible notes		2,045,000			2,045,000
Senior Secured Convertible Debentures		10,236,800			6,580,000
		16,702,670			13,045,870
Less debt issuance costs		(362,206	)		(794,741	)
Less debt discounts		(1,275,344	)		(2,331,538	)
		15,065,120			9,919,591
Less current maturities		(13,532,236	)		(6,705,000	)
Notes payable, less current maturities	$	1,532,884		$	3,214,591

The following table provides information regarding annual required repayments under the notes payable as of September 30, 2016:

2016	$	6,705,000
2017		6,827,236
2018		3,170,434
	$	16,702,670

Amortization of debt discount and debt issuance costs was approximately $683,000 and $683,000 for the three months ended September 30, 2016 and 2015, respectively, and $1,949,000 and $3,151,000 for the nine months ended September 30, 2016 and 2015, respectively.

Convertible Promissory Note

On January 28, 2014, the Company entered into a convertible promissory note (“Convertible Note”) for a principal amount of $200,000 with a stated interest rate of 18%. On January 20, 2015 and April 2015 the maturity date of the Convertible Note was extended to June 30, 2015 and May 1, 2016, respectively. On June 29, 2015, the maturity date of the Convertible Note was further amended such that half of the principal matures on July 1, 2017 and the remainder matures on January 1, 2018. All obligations under the Convertible Note were secured by a first priority security interest in all inventory of Optima. In conjunction with the Convertible Note, the Company issued a five year warrant to purchase 57,820 shares of common stock (approximately 0.4% of the Company's then total issued and outstanding shares of common stock) for an exercise price of $1.00 per share.

Because of the variable nature of the embedded warrants, the Convertible Note has been accounted for in accordance with ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The fair value of the warrants issued with the Convertible Note (as determined using the Black Scholes valuation model) was determined to be nominal, and therefore, no derivative liability or offsetting debt discount was included in the Company's condensed consolidated balance sheet as of September 30, 2016 and December 31, 2015. Management is continuing to measure the fair value of this instrument each reporting period through maturity date and record the impact under ASC 815 should the value become meaningful to the Company's consolidated condensed financial statements.

Promissory Note

On February 12, 2014, the Company entered into a promissory note (“Promissory Note”) for a principal amount of $50,000 with a stated interest rate of 18%. In April 2015, the maturity date of the Promissory Note was amended to May 1, 2016. On June 29, 2015, the maturity date of the Promissory Note was further amended such that half of the principal matures on July 1, 2017 and the remainder matures on January 1, 2018.

Series A Private Placement

On various dates from May 1, 2014 through September 19, 2014, the Company issued and sold 299.25 investment units to accredited investors (the “Series A Private Placement”). Each investment unit was sold at a purchase price of $10,000 and consisted of (i) a Series A secured promissory note in the principal amount of $10,000 (collectively the “Series A Notes”), (ii) a five-year Class A warrant to purchase 6,250 shares of common stock at an exercise price of $1.60 per share, exercisable in whole or in part as of the date of issuance (collectively the “Class A Warrants”), and (iii) five-year Class B warrants to purchase 1,756.6 shares of common stock at an exercise price of $0.01 per share, exercisable in whole or in part as of the date of issuance(collectively the “Class B Warrants”). Proceeds received from the Series A Private Placement were approximately $2,633,000 net of related costs of approximately $360,000.

In January 2015, the Company amended certain of the Series A Notes. Note holders representing $2,255,000 of outstanding principal amount of Series A Notes entered into amendments whereby (a) each Series A Note matures on the earlier of (i) the 12-month anniversary of the issuance date and (ii) the completion of any merger with or acquisition by a third party; and (b) upon an initial public offering or cash acquisition of the Company, the outstanding principal and interest will automatically convert into Common Stock at a per share conversion price equal to (i) in the event of an initial public offering, 100% of the offering price of the Common Stock in the Public Offering or (ii) in the event of an acquisition, 80% of the per share valuation of the Company’s equity in connection with the acquisition.

In conjunction with the amendments, the Company issued five year Class A Warrants to purchase an aggregate of 1,039,063 shares of common stock to note holders and 83,125 shares of common stock to the private placement agent at an exercise price of $1.60 per share, exercisable in whole or in part as of the date of issuance. The fair value of the Class A Warrants was included in derivative liabilities on the Company’s condensed consolidated balance sheet at the issuance date and re-measured at each reporting period.

Also, in May 2015, the Company amended certain of the Series A Notes whereby each Series A Note matures on the earlier of: (i) the 24-month anniversary of the issuance date; (ii) the completion of any acquisition, merger or consolidation of the Company in which the collective ownership of the Company in the transaction would own, in the aggregate, a lower percentage of the total combined voting power of the surviving entity than the acquiring company’s collective ownership; (iii) thirty (30) days following the funding of any financing that results in a listing of the Company’s common stock on a national exchange (i.e., the Nasdaq or NYSE); or (iv) the sale by the Company of all or substantially all the Company’s assets in one transaction or in a series of related transactions.

The Company accounted for the borrowing under the Series A Notes, the Class A Warrants and the Class B Warrants in accordance with the guidance prescribed in ASC Subtopic 470-20, “Debt with Conversion and other Options” (“ASC 470-20”).In accordance with ASC 470-20, the fair value of the Class A Warrants and the relative fair value of the Class B Warrants are considered an original issue discount which is required to be amortized over the life of the note as interest expense using the effective interest rate method.

In conjunction with the amendments, the Company issued (i) five year Class A Warrants to purchase an aggregate of 1,876,563 shares of common stock to note holders and approximately 149,625 shares of common stock to the private placement agent and (i) five year Class B Warrants to purchase an aggregate of 527,421 shares of common stock to note holders and approximately 42,053 shares of common stock to the private placement agent. The fair value of the Class A Warrants was included in derivative liability on the Company's condensed consolidated balance sheet at the issuance date and re-measured at each reporting period (see Note 8). The fair value of the Class B Warrants was included in stockholders’ deficit in the Company's condensed consolidated balance sheet at September 30, 2016.

In June 2015, the Company amended the maturity date of each Series A Note such that half of the principal matures on July 1, 2017 and the remainder matures on January 1, 2018. Such amendments were accounted for as modifications of debt. In conjunction with the amendments, the Company issued five year Class A Warrants to purchase an aggregate of 150,125 shares of common stock to the private placement agent. The fair value of the Class A Warrants was included in derivative liability on the Company's condensed consolidated balance sheet and re-measured at each reporting period (see Note 8).

Secured Bridge Private Placement

On various dates from September 19, 2014 through November 18, 2014, the Company issued and sold 115.5 investment units to accredited investors (the “Secured Bridge Private Placement”). Each investment unit was sold at a purchase price of $10,000 and consisted of (i) a secured promissory note in the principal amount of $10,000 (the “Bridge Note”), (ii) five-year Class A Warrant to purchase 6,250 shares of common stock, and (iii) five-year Class B Warrant to purchase 1,756.6 shares of common stock. The Class A Warrants and Class B Warrants had exercise prices of $1.60 and $.01 per share, respectively.

In May 2015, the Bridge Notes were amended, modifying the maturity date of the Bridge Notes such that each Bridge Note matures on the earlier of: (i) the receipt of funds from accounts receivable in the aggregate principal amount then outstanding of all Bridge Notes; (ii) the receipt of gross proceeds from any accounts receivable financing or factoring financing in an amount equal to at least the aggregate Bridge Note principal; (iii) thirty (30) days following the funding of any financing that results in a listing of the Company’s common stock on a national exchange; (iv) the sale by the Company of all or substantially all the Company’s assets in one transaction or in a series of related transactions; (v) the completion of any acquisition, merger or consolidation of the Company in which the collective ownership of the Company in the transaction would own, in the aggregate, a lower percentage of the total combined voting power of the surviving entity than the acquiring company’s collective ownership; and (vi) January 1, 2016.

The Company accounted for the borrowing under the Secured Bridge Notes, the Class A Warrants and the Class B Warrants in accordance with the guidance prescribed in ASC 470-20. In accordance with ASC 470-20, the fair value of the Class A Warrants and the relative fair value of the Class B Warrants are considered an original issue discount which is required to be amortized over the life of the note as interest expense using the effective interest rate method.

In conjunction with the amendments, the Company issued (i) five year Class A Warrants to purchase an aggregate of 721,875 shares of common stock to note holders and approximately 57,750 shares of common stock to the private placement agent and (ii) five year Class B Warrants to purchase an aggregate of 202,888 shares of common stock to note holders and approximately 16,231 shares of common stock to the private placement agent. The fair value of the Class A Warrants was included in derivative liability on the issuance date and re-measured at each reporting period (see Note 8). The fair value of the Class B Warrants was included in stockholders’ deficit on the issuance date.

In June 2015, the Company further amended the maturity date of certain Bridge Notes such that half of the principal matures on July 1, 2017 and the remainder matures on January 1, 2018. In July 2015, a Bridge Note with an original principal amount of $125,000 was repaid. In conjunction with the amendments, the Company issued five year Class A Warrants to purchase an aggregate of 643,750 shares of common stock to note holders and approximately 57,750 shares of common stock to the private placement agent. The fair value of the Class A Warrants was included in derivative liability at the issuance date and re-measured as of the reporting period.

Convertible Notes Private Placement

On various dates from January 1, 2015 through June 30, 2015, the Company issued and sold 179.5 investment units to accredited investors (the “Convertible Notes Private Placement”). Each investment unit was sold at a purchase price of $10,000 and consisted of (i) a convertible promissory note in the principal amount of $10,000 (collectively, the “Convertible Notes”) and (ii) a five year Class C warrant to purchase 1,502.6 shares of common stock (collectively, the “Class C Warrants”). As a result of the Convertible Notes Private Placement, the Company issued warrants to purchase an aggregate of 269,717 shares of common stock. In connection with the Convertible Note Private Placement, the Company issued to the placement agent (i) five-year Class C Warrants to purchase an aggregate of 21,577 shares of common stock.

Each Convertible Note bears interest at a rate of 9% per annum and matures on the 12-month anniversary of the issuance date unless converted into equity upon an initial public offering of the Company’s securities or a cash acquisition of the Company. The terms of the Convertible Notes provide that the unpaid principal and interest amounts will automatically convert into common stock in the event of an initial public offering or an acquisition at a per share conversion price equal to (i) in the event of an initial public offering, eighty percent (80%) of the offering price of the Common Stock in the Public Offering or (ii) in the event of an acquisition, 80% of the per share valuation of the Company’s equity in connection with the acquisition.

The terms of the Class C Warrants provide that the exercise price of each warrant shall be (i) if the warrant is exercised on the Company’s initial public offering date, 110% of the per warrant share offering price of the Company’s securities in its initial public offering, (ii) if the warrant is exercised upon the occurrence of an acquisition of the Company, the lower of (x) 20% discount to the warrant share valuation in the acquisition and (y) a per warrant share price based on a fully diluted market capitalization value of one hundred million dollars ($100,000,000) on the date of the acquisition, and (iii) if the warrant is exercised on June 30, 2015, a per warrant share price based on a fully diluted market capitalization value of one hundred million dollars ($100,000,000) on June 30, 2015. At the time of issuance, the Company determined that the variable exercise price feature on the Class C Warrants constituted a derivative liability because the variable exercise price feature represents a variable conversion feature.

The Company accounted for the borrowing under the Convertible Notes and the Class C Warrants in accordance with the guidance prescribed in ASC 470-20. In accordance with ASC 470-20, the fair value of the Class C Warrants is considered an original issue discount which is required to be amortized over the life of the note as interest expense using the effective interest rate method.

The fair value of the Class C Warrants was immaterial on the issuance dates and September 30, 2016 (see Note 8). The Company used a Binomial Lattice Valuation Model to calculate the fair value of the Class C Warrants.

Proceeds received from the Convertible Note Private Placement were approximately $1,565,000, net of related costs of approximately $230,000.

In June 2015, the Company amended the maturity date of each Convertible Note such that half of the principal matures on July 1, 2017 and the remainder matures on January 1, 2018, unless earlier converted into equity.

In conjunction with the amendments, the Company issued five year Class A Warrants to purchase an aggregate of 102,250 shares of common stock to the private placement agent. The fair value of the Class A Warrants was included in derivative liability at the issuance date and re-measured as of the reporting period (see Note 8).

Short-Term Promissory Note

In May 2015, the Company entered into a promissory note (“Short-Term Promissory Note”) for a principal amount of $100,000 with a stated interest rate of 9%.

In June 2015, the Company amended the maturity date of the Short-Term Promissory Note such that half of the principal matures on July 1, 2017 and the remainder matures on January 1, 2018, unless earlier converted into equity. Such amendment was accounted for as a modification of debt.

In conjunction with the Short-Term Promissory Note, the Company issued (i) five year Class A Warrants to purchase an aggregate of 62,500 common shares at an exercise price of $1.60 per share and (i) five year Class B Warrants to purchase an aggregate of 17,566 common shares at an exercise price of $0.01 per share. In conjunction with the amendment, in June 2015, the Company issued five year Class A Warrant to purchase an aggregate of 62,500 common shares to the note holder and approximately 5,000 common shares to the private placement agent.

The terms of the Class A Warrants provide that, in the event the Company receives gross proceeds of at least $1,000,000 in a qualified financing (as defined therein) at a per share price of less than $1.60 per share, the exercise price will reset to 80% of the financing price. At the time of issuance, the Company determined that the price protection feature on the Class A Warrants constituted a derivative liability because the price protection feature represents a variable conversion feature.

The Company accounted for the borrowing under the Short-Term Promissory Note, the Class A Warrants and the Class B Warrants in accordance with the guidance prescribed in ASC 470-20, In accordance with ASC 470-20, the fair value of the Class A Warrants and the relative fair value of the Class B Warrants are considered an original issue discount which is required to be amortized over the life of the note as interest expense using the effective interest rate method.

The relative fair value of the Class B Warrants was recorded in stockholders’ deficit on the issuance date. The Company used the Black-Scholes pricing model to calculate the fair value of the Class B Warrants.

The Company used a Binomial Lattice Valuation Model to calculate the fair value of the Class A Warrants on the issuance date and is re-measured at each reporting period (see Note 8).

Promissory Note

In June 2015, the Company entered into a promissory note for a principal amount of $400,000 with the Royalty Obligation Purchaser (see Note 6). $275,000 of principal was repaid, as well as a $50,000 interest payment, in July 2015; and the remaining $125,000 principal amount was due on July 1, 2016.

The Company was unable to make the July 1, 2016 principal payment. Based on the Company’s current financial condition, there can be no certainty that the Company will be able to make the payment and is currently negotiating with the Royalty Obligation purchaser for an extension of the maturity date.

Securities Purchase Agreements

On various dates from June 30, 2015 through September 30, 2016, the Company entered into a series of securities purchase agreements (each, a “Securities Purchase Agreement” and collectively, the “Securities Purchase Agreements”) with Hillair Capital Investment L.P. (the “Investor”), pursuant to which the Company sold a series of original issue discount senior secured convertible debentures (each, a “Debenture” and collectively, the “Debentures”).

Pursuant to the Securities Purchase Agreements dated June 30, 2015 through December 31, 2015, the Company sold an aggregate of $6,580,000 in principal amount of Debentures dated July 1, 2015, to the Investor for an aggregate purchase price of $5,875,000. Pursuant to the Securities Purchase Agreements dated June 30, 2015 through December 31, 2015, the Company also issued warrants to the Investor to purchase an aggregate of 3,290,000 shares of the Company’s common stock (subject to adjustment) (collectively, the “Investor Warrants”). The Debentures sold in 2015 mature on January 1, 2017, and accrue interest at the rate of 8% per annum. One quarter of the original principal amount of the Debentures sold in 2015 is payable on each of July 1, 2016 and October 1, 2016, and the remaining principal amount of the Debentures sold in 2015 is payable on January 1, 2017. 8% accrued interest on the Debentures sold in 2015 is payable on January 1, April 1, July 1 and October 1 of each year, commencing on April 1, 2016.

The Company did not make its April 1, 2016 or July 1, 2016 interest payments or the July 1, 2016 principal payment due under the Debentures sold in 2015. On July 8, 2016, the Company received a waiver from the Investor extending any scheduled interest and principal payments to January 1, 2017. Based on the Company’s current financial condition, there can be no certainty that the Company will be able to make the delinquent interest and principal payments and accordingly the outstanding principal amount due under the Debentures sold in 2015 has been presented as current in the Company’s condensed consolidated balance sheets

On January 7, 2016 the Company entered into an additional Securities Purchase Agreement with the Investor, pursuant to which the Company sold an aggregate of $504,000 in principal amount of a Debenture for an aggregate purchase price of $450,000 to the Investor. This Debenture matures on February 1, 2017, and does not bear interest but has an effective interest rate of 12% per annum.

On February 17, 2016, the Company entered into an additional Securities Purchase Agreement with the Investor, pursuant to which the Company sold an aggregate of $616,000 in principal amount of a Debenture for an aggregate purchase price of $550,000 to the Investor. This Debenture matures on March 1, 2017, and does not bear interest but has an effective interest rate of 12% per annum.

On April 14, 2016, the Company entered into an additional Securities Purchase Agreement with the Investor, pursuant to which the Company sold an aggregate of $828,800 in principal amount of a Debenture for an aggregate purchase price of $740,000 to the Investor. This Debenture matures on May 1, 2017, and does not bear interest but has an effective interest rate of 12% per annum.

On June 13, 2016, the Company entered into an additional Securities Purchase Agreement with the Investor, pursuant to which the Company sold an aggregate of $252,000 in principal amount of a Debenture for an aggregate purchase price of $225,000 to the Investor. This Debenture matures on July 1, 2017, and does not bear interest but has an effective interest rate of 12% per annum

On July 8, 2016, the Company entered into an additional Securities Purchase Agreement with the Investor, pursuant to which the Company sold an aggregate of $616,000 in principal amount of a Debenture for an aggregate purchase price of $550,000 to the Investor. This Debenture matures on July 1, 2017, and does not bear interest but has an effective interest rate of 12% per annum.

On August 16, 2016, the Company entered into an additional Securities Purchase Agreement with the Investor, pursuant to which the Company sold an aggregate of $448,000 in principal amount of a Debenture for an aggregate purchase price of $400,000 to the Investor. The Debenture matures on August 1, 2017, and does not bear interest but has an effective interest rate of 12% per annum.

On September 15, 2016, the Company entered into an additional Securities Purchase Agreement with the Investor, pursuant to which the Company sold an aggregate of $392,000 in principal amount of a Debenture for an aggregate purchase price of $350,000 to the Investor. The Debenture matures on September 1, 2017, and does not bear interest but has an effective interest rate of 12% per annum.

Proceeds received from the Debentures sold in 2016 were approximately $3,198,000, net of related costs of approximately $69,000 and original issue discounts of $392,000 respectively, during the nine months ended September 30, 2016. Debt issuance costs will be amortized to interest expense over the life of the Debentures sold in 2016. No warrants were issued in connection with the Debentures issued in 2016.

Principal and accrued interest amounts under the Debentures are convertible at the option of the Investor at any time into shares of the Company’s common stock at an initial conversion price (as may be adjusted, the “Conversion Price”) of $2.00 per share, subject to certain ownership limitations and adjustment provisions. The Conversion Price is subject to reduction to an amount equal to 90% of the effective price per share of securities issued by the Company (i) in a registered offering of our common stock or securities convertible into or exchangeable for shares of the Company’s common stock (collectively “Common Stock Equivalents”) or (ii) in any other financing or series of financings of the Company’s common stock or Common Stock Equivalents with gross proceeds of $4,000,000 or more (each, a “Triggering Event”). Beginning six months after the original issue date for each Debenture, the Company has the option, subject to certain conditions, to redeem some or all of the then outstanding principal amount of the Debenture for cash in an amount equal to the sum of (i) 120% of the then outstanding principal amount of such Debenture, (ii) accrued but unpaid interest and (iii) any liquidated damages and other amounts due in respect of such Debenture.

Pursuant to the terms of the Debentures, the Company has agreed to certain negative covenants, including not to incur or repay any other indebtedness, for so long as any portion of the Debenture remains outstanding.

Each of the Investor Warrants is exercisable for a period of five years from the original issue date of each Investor Warrant, at an initial exercise price of $2.40 per share (the “Investor Warrant Exercise Price”). In addition to customary adjustments for stock splits and the like, if a Triggering Event occurs, the Investor Warrant Exercise Price is subject to reduction to the Conversion Price applicable as a result of such Triggering Event, in which event the number of shares of common stock issuable under the Investor Warrants would be increased such that the aggregate Investor Warrant Exercise Price payable under the Investor Warrants, after taking into account the decrease in the Investor Warrant Exercise Price, would be equal to the aggregate Investor Warrant Exercise Price prior to such adjustment. If at any time after the six month anniversary of the original issue date for each Investor Warrant there is no effective registration statement registering, or no current prospectus available for, the resale of the shares of common stock underlying the Investor Warrant, then such Investor Warrant may be exercised, in whole or in part, at such time on a “cashless exercise” basis.

The Company’s obligations under the Debentures are secured by a lien on all of the Company’s assets, including a pledge of the securities of its subsidiaries, pursuant to the terms of a security agreement entered into as of June 30, 2015 between the Company and the Investor.

Pursuant to the terms of the Securities Purchase Agreements dated June 30, 2015 through December 31, 2015, the Investor received a right of first refusal to purchase up to 100% of the securities offered by the Company in future private placement offerings through November 30, 2016. In addition, from the original issue date for each Debenture and Investor Warrant until the 12-month anniversary of the date the Company’s common stock is listed on Nasdaq or NYSE MKT, the Investor may, in its sole determination, elect to purchase, in one or more purchases, additional debentures with an aggregate subscription amount of up to $4,000,000, and Investor Warrants to purchase that number of shares of the Company’s common stock equal to the original principal amount of such additional debentures divided by $2.00. Subject to certain exceptions, the Company agreed (i) for a period of 180 days following the closing date for each Securities Purchase Agreement , not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of common stock or any securities convertible into or exchangeable for shares of common stock, and (ii) until such time as the Debentures and Investor Warrants are no longer outstanding, not to issue any shares of common stock or any securities convertible into or exchangeable for shares of common stock at an effective per share purchase price of less than $2.40 (subject to adjustment for stock splits and the like), provided that after the time that the related Debentures are no longer outstanding, the Company may receive a waiver from such restriction by paying the Investor an amount in cash equal to 15% of the purchase price paid by the Investor for the related Debentures. If at any time during the period beginning on the six-month anniversary of the closing date for each Securities Purchase Agreement and ending at such time as all of the shares of common stock underlying the related Debentures and Investor Warrants can be sold without restriction or limitation pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, if the Company either (i) shall fail for any reason to satisfy the current public information requirements contained in Rule 144 or (ii) shall have ever been, or become, an issuer described in section (i)(1)(i) of Rule 144, then the Company shall be obligated to pay to the Investor an amount in cash, as liquidated damages and not as a penalty, equal to 2% of the purchase price paid by the Investor for the Debenture per month until the applicable event giving right to such payments is cured (or the Investor is nonetheless able to transfer the Securities pursuant to Rule 144).

On the Effective Date, pursuant to the terms of the Securities Purchase Agreement dated as of the Effective Date, the Investor entered into a lock-up agreement (the “Investor Lock-Up Agreement”), pursuant to which it agreed, subject to certain exceptions and conditions, not to sell any of the Securities for a period commencing on the Effective Date and ending on the earlier of (i) the first anniversary of the Effective Date, (ii) the date on which the Company notifies the Investor of its intention to redeem some or all of the outstanding principal amount of the Debenture pursuant to the terms thereof or (iii) a trading day on or after the nine-month anniversary of the Effective Date on which either: (x) the aggregate dollar trading volume of the Company’s common stock since the Effective Date equals or exceeds $10,000,000 (provided that since the Effective Date, the closing bid price of the Company’s common stock has been equal to or exceeded $4.00 for a period of 30 consecutive trading days) or (y) the closing bid price of the Company’s common stock equals or exceeds $8.00 for a period of 30 consecutive trading days.

At the time of issuance, the Company determined that (i) the net share settlement (cashless exercise) provision on the Investor Warrants and (ii) the variable Debenture conversion price constituted derivative liabilities because the variable exercise price and variable Debenture conversion price features represented variable conversion features.

The Company accounted for the borrowing under the Debentures, the Investor Warrants and the conversion rights in accordance with the guidance prescribed in ASC 470-20. In accordance with ASC 470-20, the fair value of the Investor Warrants and the conversion rights are considered original issue discounts, required to be amortized over the life of the note as interest expense using the effective interest rate method.

The fair value of the Investor Warrants and conversion rights were recorded on the issuance dates using a Binomial Lattice Valuation Model, which was included in derivative liability on the Company’s condensed consolidated balance sheets, and re-measured as of September 30, 2016 (see Note 8).