Note 6 - Warrants

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Notes to Financial Statements

Warrants [Text Block]

Note

6.

Warrants

Warrants Issued Concurrently with Winter

2016

Unit Offering

During the

three

months ended

March

31,

2017,

pursuant to the terms of our Winter

2016

Unit Offering (see Note

4),

we issued warrants to purchase up to an aggregate

219,298

shares of our common stock at an exercise price of

$0.70

per share. These warrants expire

December

31,

2021.

The relative fair value of these warrants and the intrinsic value of the beneficial conversion feature resulted in

$125,000

recorded as a discount on our convertible notes on our consolidated balance sheet in the period issued.

The Winter

2016

Unit Offering closed

January

13,

2017,

and in total we issued warrants to purchase up to an aggregate

512,281

shares of our common stock at an exercise price of

$0.70

per share. 

Warrants Issued Concurrently with One Year Convertible Notes

On

July

8,

2016,

we issued warrants to purchase an aggregate

400,000

shares of our common stock. These warrants are initially exercisable at

$0.65

per share and expire

July

8,

2021.

The fair value of warrants issued resulted in

$160,000

discount on the

one

year convertible note. Additionally, the exercise price of the stock purchase warrant

may

be adjusted downward in the event we sell our common stock or issue warrants at a lower price, other than through our

2015

Unit Offering (and, pursuant to a letter agreement dated

December

30,

2016,

through our Winter

2016

Unit Offering and the

December

30,

2016

investment detailed in next paragraph). The warrant does not qualify for equity classification, therefore we have recognized the warrant as a derivative liability. As a result, we are required to calculate the fair value at each reporting period and record the change.

On

December

30,

2016

we issued warrants to purchase an aggregate

400,000

shares of our common stock. These warrants are initially exercisable at

$0.75

per share and expire

December

30,

2021.

The stock price on the date of grant was

$0.83.

The fair value of warrants issued resulted in

$280,000

discount on the

one

year convertible note. Additionally, the exercise price of the stock purchase warrant

may

be adjusted downward in the event we sell our common stock or issue warrants at a lower price, other than through our Winter

2016

Unit Offering or to persons providing services to our company. The warrant does not qualify for equity classification, therefore we have recognized the warrant as a derivative liability. As a result, we are required to calculate the fair value at each reporting period and record the change.

The fair value of these warrants on

March

31,

2017,

totaled

$397,960

and is recorded as a derivative liability on our balance sheet. The change in fair value for the

three

months ended

March

31,

2017,

resulted in other income of

$265,600

recorded on our statement of operations.

Series A Warrants

During the

three

months ended

March

31,

2016,

pursuant to the terms of our

2015

Unit Offering (see Note

4),

we issued warrants to purchase up to an aggregate

728,571

shares of our common stock at an exercise price of

$0.45

per share. These warrants were issued to investors and as commissions, and are set to expire

June

1,

2020.

The intrinsic and relative fair value of these warrants resulted in

$255,000

recorded as a discount on our convertible notes on our consolidated balance sheet in the period issued.

Each Series A warrant allows for the purchase of the number of common shares equal to the investment amount divided by the Unit price, (e.g.,

one

warrant share for each share of common stock which the investor is eligible to receive through conversion of his original convertible note) and, the warrant will have an exercise price as set forth in the Pricing Supplement. Each Series A warrant expires

June

1,

2020.

The Company

may

“call” the Series A warrant, requiring the investor to exercise the warrant within

30

days or forever lose the rights to do so, only if the following conditions have been met: (i) the underlying Shares are registered with the SEC, and (ii) the Company’s common stock closes for

ten

consecutive trading days at or above

two

times the exercise price.

Exercise of Warrants

During the

three

months ended

March

31,

2017,

we issued

510,000

shares of our common stock and in exchange we received proceeds totaling

$153,000

from the exercise of our outstanding stock purchase warrants. Of the warrants exercised,

370,000

shares were exercised at

$0.30

per share and

140,000

shares were exercised at

$0.25

per share.

No

warrants were exercised in the

three

months ended

March

31,

2016.

We have certain warrants outstanding to purchase our common stock, at various prices, as summarized in the following tables:

As of March 31, 2016	Number of
	Shares		Price Range
Balance, December 31, 2015		13,779,438	$0.125	–	1.00
Issued		728,571		0.45
Expired		—		—
Balance, March 31, 2016		14,508,009	$0.125	–	1.00

As of March 31, 2017	Number of
	Shares			Price Range
Balance, December 31, 2016		20,035,114		$0.125	–	1.00
Issued		219,298			0.70
Exercised		(510,000	)	0.25	–	0.30
Balance, March 31, 2017		19,744,412		$0.125	–	1.00

The fair value of each award grant is estimated on the date of grant using the Black-Scholes option-pricing model. The determination of expense of warrants issued for services or settlement also uses the option-pricing model. The principal assumptions we used in applying this model were as follows for the

three

months ended

March

31:

	2016			2017
Risk free interest rate		1.36	%		1.93	%
Expected volatility		315	%		297	%
Expected dividend yield		—			—
Forfeiture rate		—			—
Expected life in years		5			5

The risk-free interest rate is based on U.S Treasury yields in effect at the time of grant. Expected volatilities are based on historical volatility of our common stock.

Note

6.

Warrants

Series A Warrants

Pursuant to the terms of our

2015

Unit Offering, during the year ended

December

31,

2016,

we issued warrants to purchase up to an aggregate

5,429,872

shares of our common stock. Of this amount, warrants to purchase an aggregate

2,814,286

shares were issued at an exercise price of

$0.45

per share, and warrant to purchase an aggregate

2,615,586

shares were issued at an exercise price of

$0.70

per share. These warrants were issued to investors in our

2015

Unit Offering (see Note

4),

as commissions to licensed brokers in conjunction therewith, and to other investors who converted their investors into notes on the same terms as the

2015

Unit Offering and Series A warrants. Series A Warrants totaling

4,059,744

expire

June

1,

2020

and

854,545

expire

July

31,

2021.

The relative fair value of these warrants resulted in

$2,115,874recorded

as a discount on our convertible notes on our consolidated balance sheets in the periods presented.

Pursuant to the terms of our

2015

Unit Offering, during the year ended

December

31,

2015,

we issued Series A warrants to purchase up to an aggregate

9,597,123

shares of our common stock. Of that amount, warrants to purchase an aggregate

6,320,800

shares were issued at an exercise price of

$0.40

per share, and a warrant to purchase

3,276,323

shares was issued at an exercise price of

$0.45

per share. These warrants were issued to investors and as commissions, and expire

June

1,

2020.

 The fair value of the warrants and the intrinsic value of the beneficial conversion feature resulted in an aggregate

$3,319,906

discount on the convertible notes payable.

Warrants Issued Concurrently with Line of Credit

During the year ended

December

31,

2016

we issued warrants to purchase an aggregate

300,000

shares of our common stock. These warrants are exercisable at

$0.35

per share and expire in

June

2021.

The relative fair value of warrants issued resulted in

$237,405

discount on the letter of credit.

 Pursuant to the terms of our line of credit,

five

line of credit holders exchanged their line of credit and accrued interest for notes and warrants on the terms offered in our

2015

Unit Offering totaling

$283,571

(see Notes

4

and

5).

With the exchange, these note holders received additional warrants to purchase an aggregate

515,583

of our common stock at an exercise price of

$0.70

which expire

June

1,

2018.

The fair value of the warrants and the intrinsic value of the beneficial conversion feature resulted in an aggregate

$283,571

recorded as a discount on convertible notes payable.

Warrants Issued Concurrently with One Year Convertible Note

s

On

July

8,

2016

we issued warrants to purchase an aggregate

400,000

shares of our common stock. These warrants are initially exercisable at

$0.65

per share and expire

July

8,

2021.

The fair value of warrants issued resulted in

$160,000

discount on the

one

year convertible note. Additionally, the exercise price of the stock purchase warrant

may

be adjusted downward in the event we sell our common stock or issue warrants at a lower price, other than through our

2015

Unit Offering. The warrant does not qualify for equity classification, therefore we have recognized the warrant as a derivative liability.

On

December

30,

2016

we issued warrants to purchase an aggregate

400,000

shares of our common stock. These warrants are initially exercisable at

$0.75

per share and expire

December

30,

2021.

The fair value of warrants issued resulted in

$280,000

discount on the

one

year convertible note. Additionally, the exercise price of the stock purchase warrant

may

be adjusted downward in the event we sell our common stock or issue warrants at a lower price, other than through our

2015

Unit Offering. The warrant does not qualify for equity classification, therefore we have recognized the warrant as a derivative liability.

Warrants Issued Concurrently with Winter

2016

Unit Offering

On

December

28,

2016

we issued warrants to purchase an aggregate

292,983

shares of our common stock to investors of our Winter

2016

Unit Offering (see Note

4).

These warrants are initially exercisable at

$0.70

per share and expire

December

31,

2021.

The fair value of warrants issued resulted in

$167,000

discount on the convertible notes issued to the investors.

Warrants Issued Concurrently with December/January Notes

During the year ended

December

31,

2015,

we issued warrants to purchase an aggregate

266,000

shares of our common stock to holders of our December/January notes (see Note

5).

These warrants are exercisable at

$0.30

per share and expire

January

2020.

 The fair value of warrants totaled

$133,000

and was recorded as interest expense.

We have certain warrants outstanding to purchase our common stock, at various prices, as described in the following table:

	Number of
	Shares			Price Range
Outstanding as of December 31, 2014		8,838,122		$0.125	-	1.00
Issued		12,693,395		0.30	-	0.45
Exercised		—		0.30	-	0.50
Expired		(7,752,079	)	0.25	-	0.75
Outstanding as of December 31, 2015		13,779,438		$0.125	-	1.00
Prior year extensions		4,634,637			0.30
Issued		6,822,855		0.35	-	0.75
Exercised		(2,818,271	)	0.25	-	0.40
Expired		(2,383,545	)	0.55	-	0.75
Outstanding as of December 31, 2016		20,035,114		$0.125	-	1.00

To determine interest expense related to our outstanding warrants issued in conjunction with debt offerings, the fair value of each award grant is estimated on the date of grant using the Black-Scholes option-pricing model and the relative fair values are amortized over the life of the warrant. The determination of expense of warrants issued for services or settlement also uses the option-pricing model. The principal assumptions we used in applying this model were as follows:

	2015			2016
Risk free interest rate	.97	-	1.60%	.95	-	1.96%
Expected volatility	255	-	332%	301	-	315%
Expected dividend yield		-			-
Forfeiture rate		-			-
Expected life in years	3	-	5	3	-	5

The risk-free interest rate is based on U.S Treasury yields in effect at the time of grant. Expected volatilities are based on historical volatility of our common stock. The expected life in years is based on the contract term of the warrant.