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Note 6 - Convertible Debt | 9 Months Ended
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Sep. 30, 2016
Notes to Financial Statements |
Debt Disclosure [Text Block] |
6. | Convertible Debt
The following table provides the details of the Convertible Notes outstanding at September 30, 2016:
Note |  | Issue Date |  | Maturity Date |  | Conversion Price |  |  | Interest Rate |  |  | Total Principal |
2016 Convertible Notes |  | 9/27/2016 |  | 9/27/2017 |  | $ | 3.50 |  |  |  | 6.00 | % |  | $ | 1,880,000 |
Series B Note |  | 3/15/2011 |  | 6/30/2018 |  | $ | 2.74 |  |  |  | 1.00 | % |  |  | 550,000 |
Total principal amount |  |  |  |  |  |  |  |  |  | $ | 2,430,000 |
On September 27, 2016, the Company issued and sold convertible promissory notes (“2016 Convertible Notes”) in an aggregate principal amount of $1,880,000. The 2016 Convertible Notes were issued to an investor and certain other parties in connection with the settlement of a litigation matter (see Note 9). The 2016 Convertible Notes have a term of one year and bear interest at a rate of 6.0% per annum with the principal and accrued interest due upon the earlier of the maturity date or conversion date. At any time prior to the maturity date, the holders may elect to convert, in whole or in part, the 2016 Convertible Notes (including any accrued but unpaid interest) into shares of the Company’s common stock, par value $0.001 per share, at a conversion price of $3.50 per share. In the event of a Change of Control (as defined in the 2016 Convertible Notes), the holders of the 2016 Convertible Notes may declare the aggregate outstanding amount of the 2016 Convertible Notes to be immediately due and payable or may elect to convert the 2016 Convertible Notes and any accrued but unpaid interest as if such conversion took place on the maturity date. The Company accounted for the issuance of the convertible promissory notes in accordance with ASC 470-10-25 and, at the time of issuance, recorded a litigation settlement expense of $2,500,000 which represents the difference between the estimated fair value of the 2016 Convertible Notes issued and the cash received from the noteholders. From December 2009 through December 2015, Diffusion LLC issued unsecured convertible promissory notes (the “Convertible Notes”) for gross proceeds of $22,384,320. The Convertible Notes bear interest at either 1% or 1.5% per annum. The Convertible Notes accrue interest beginning on the date of issuance, with the principal and accrued interest due upon the earlier of the maturity date or conversion date. At any time prior to the maturity date, the holders may elect to convert, in whole or in part, the Convertible Notes and any related accrued but unpaid interest into common stock of the Company at a price per share equal to the conversion price. In the event of a Change of Control or a Qualified Financing (each as defined below), the holders of the Convertible Notes may declare the aggregate outstanding amount of the Convertible Notes to be immediately due and payable or may elect to convert the Convertible Notes and any accrued but unpaid interest as if such conversion took place on the maturity date. A Change of Control is defined as: (i) a merger or consolidation in which the members immediately prior to the transaction do not own, directly or indirectly, more than 50% of the membership interest of the surviving company; (ii) the acquisition of more than 50% of the Company’s outstanding membership interest by a single person, entity or group or persons or entities acting in concert or (iii) the sale or transfer of all or substantially all of the assets of the Company. A Qualified Financing is defined as a sale of units or other transaction that results in gross proceeds to the Company of at least $15,000,000, including the conversion of the Convertible Notes. Through the date the financial statements were available to be issued, there have been no Change of Control or Qualified Financing events. The Company may prepay the Convertible Notes, in full or in part, at any time on a pari passu basis. Upon receipt of notice that the Company intends to prepay the Convertible Notes, holders will have the option to convert their notes in lieu of payment. At the effective time of the Merger, $1,125,000 in aggregate principal amount of Convertible Notes were outstanding and the rights of the holders of each such outstanding Convertible Note convertible into Diffusion Units were converted into the right to convert such securities into a number of shares of the Company’s common stock equal to the number of Diffusion Units such Convertible Note would be convertible into pursuant to its terms multiplied by the Exchange Ratio. During the nine months ended September 30, 2016, the following Convertible Notes and the related accrued interest were converted into 217,122 shares of common stock:
Convertible Note Series |  | Principal |  |  | Accrued Interest |  |  | Total Principal and Accrued Interest |
B |  | $ | 20,000 |  |  | $ | 962 |  |  | $ | 20,962 |
C |  |  | 425,000 |  |  |  | 14,538 |  |  |  | 439,538 |
E |  |  | 50,000 |  |  |  | 770 |  |  |  | 50,770 |
F |  |  | 200,000 |  |  |  | 225 |  |  |  | 200,225 |
Total |  | $ | 695,000 |  |  | $ | 16,495 |  |  | $ | 711,495 |
During the three and nine months ended September 30, 2015, $54,500 and $1,361 of Series C principal and accrued interest, respectively, were converted into equity.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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