DERIVATIVE WARRANT LIABILITY

3 Months Ended

Mar. 31, 2017

NOTE 5. 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 during the three months ended March 31, 2017 were:


Stock price on valuation date	$ 2.21 – 3.25
Risk-free interest rate	1.3 – 1.5 %
Expected dividend yield	–
Expected term (in years)	2.5 – 2.7
Expected volatility	146 – 153 %
Number of iterations	5

Changes in the derivative warrant liability were as follows:


December 31, 2016	$	23,120,000
Decrease in fair value		(5,132,000)
Reclassification to additional paid-in capital upon exercise of warrants		(5,828,000)
March 31, 2017	$	12,160,000