DERIVATIVE WARRANT LIABILITY

9 Months Ended

Sep. 30, 2016

Disclosure Text Block [Abstract]

Derivatives and Fair Value [Text Block]

NOTE 6.  DERIVATIVE WARRANT LIABILITY

On September 21, 2016, in connection with the 12% Notes, we issued the 12% Warrants, which are treated as a derivative liability and adjusted to fair value at the end of each period.  The underlying assumptions used in the binomial model to determine the fair value of the derivative warrant liability were:

		September 21, 2016		September 30, 2016
Current stock price	$	1.20	$	1.91
Risk-free interest rate		0.92 %		0.77%
Expected dividend yield		--		--
Expected term (in years)		3.0		3.0
Expected volatility		146 %		146 %
Number of iterations		5		5

The initial fair value of the derivative warrant liability was recorded as follows:

Extinguishment of debt	$	1,715,000
Interest expense		5,189,000
Debt discount		2,450,000
Initial fair value of warrants issued	$	9,354,000

Changes in the derivative warrant liability were as follows:

January 1, 2016	$	--
Initial fair value of warrants issued		9,354,000
Increase in fair value		6,032,000
September 30, 2016	$	15,386,000