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Senior Convertible Debentures

3 Months Ended

Dec. 31, 2015

Note 6

Senior Convertible Debentures

	December 31,			September 30,
Senior Convertible Debentures	2015			2015

Senior Convertible Debentures, non-interest
bearing, unsecured, due March 18, 2044	$	4,982		$	6,144
Less: Debt Discount		(4,717	)		(5,812	)
Total carrying value		265			332
Less: current portion		-			-
Long term liability	$	265		$	332

On March 13, 2014, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain purchasers (the “Purchasers”) pursuant to which the Company issued senior convertible debentures in the aggregate principal amount of $10,000,000 (the “Debentures”).

In connection with the issuance of the Debentures, the Company issued an aggregate of 16,916,666 share purchase warrants as follows:

			Non-
	Purchasers		purchasers		Total
Series A Warrants		8,333,333		125,000		8,458,333
Series B Warrants		8,333,333		125,000		8,458,333
		16,666,666		250,000		16,916,666

Each Series A warrant is exercisable into one common share of the Company at $1.20 per share until March 18, 2019.

Each Series B warrant is exercisable into one common share of the Company at $1.68 per share until March 18, 2019

The Debentures are unsecured, non-interest bearing and are due on March 18, 2044. The Debentures were originally convertible, in whole or in part, at the option of the holder into common shares of the Company at $1.20 per share (“the Conversion Price”). The Conversion Price of the debenture will be adjusted in the event of common stock dividend, split or consolidation. The Conversion Price was later amended to $1.00 per share.

Pursuant to the guidance of ASC 470-20 Debt with Conversion and Other Options, the Company allocated the proceeds from the issuance of the Debentures between the Debentures and the detachable Purchaser warrants using the relative fair value method. The fair value of the Purchaser warrants of $22,326,200 at issuance resulted in a debt discount at issuance of $5,989,900.

The Company recorded a beneficial conversion feature discount of $4,010,100 in respect of the Debentures issued, based on the intrinsic value of the conversion feature limited to a maximum of the total proceeds of the Debentures allocated to the Debentures. In connection with the recognition of a beneficial conversion feature for accounting purposes and, under the guidance of ASC 740-10, which requires the recognition of a deferred income tax liability in respect of the temporary difference for tax purposes relating to the beneficial conversion feature, the Company recognized a deferred income tax liability of $1,400,000, with an offsetting adjustment to additional paid-in capital. Such deferred tax liability was subsequently reversed in connection with the amendment of such Debentures during the year ended September 30, 2014.

The total debt discount at issuance of $10,000,000 was being amortized using the effective interest method over the term of the Debentures. During the year ended September 30, 2014 and in connection with certain amendment agreements, remaining unamortized financing costs of $1,110,568 associated with the Debentures were immediately amortized through earnings upon entering into the amendments.

In consideration for the Debentures issued, the Company issued an aggregate of 250,000 share purchase warrants to non-lenders as described above. The fair value of the Non-Purchaser Warrants of $334,900, along with finder’s fees and other financing costs directly associated with the issuance of the Debentures in the amount of $788,712, was recorded as a deferred financing charge and was being amortized to income over the term of the Debentures using the effective interest method.

The fair value of the Purchaser and Non-Purchaser warrants at issuance was determined using the Black Scholes option pricing model with the following weighted average assumptions:

Risk-free interest rate		1.56	%
Expected life (years)		5.00
Expected volatility		97.16	%
Stock price	$	1.76
Dividend yields		0.00	%

In connection with the Purchase Agreement, the Company also entered into a registration rights agreement with each Purchaser (the “RRA”) whereby the Company agreed to file a registration statement with the Securities and Exchange Commission (the “SEC”) covering the resale of the shares of the Company’s common stock issuable upon conversion of the Debentures and upon exercise of the Purchaser warrants.

On July 23, 2014, the registration statement was declared effective by the SEC.

During the three months ended December 31, 2015, the Company issued an aggregate of 1,162 shares of common stock based on a conversion price of $1.00 per share pursuant to the conversion of $1,162 in outstanding principal amounts due under the Debentures.