Note

Warrants

We recorded

$668,257

and

$1,723,396

of interest expense related to the amortization of the discount on convertible notes, line of credit, deferred financing fees and for the extension of warrants set to expire during the

six

-months ended

June 30, 2016

and

2017,

respectively.

Warrants Issued Concurrently with

the Summer

2017

Unit Offering

During the

three

months ended

June 30, 2017,

pursuant to the terms of our Summer

2017

Unit Offering (see Note

), we issued warrants to purchase up to an aggregate

238,096

shares of our common stock at an exercise price of

$0.65

per share. These warrants expire

June 20, 2022.

The relative fair value of these warrants resulted in

$125,000

recorded as a discount on our convertible notes.

Warrants Issued Concurrently with

the

Winter

2016

Unit Offering

During the

three

months ended

March 31, 2017,

pursuant to the terms of our Winter

2016

Unit Offering (see Note

), 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 resulted in

$125,000

recorded as a discount on our convertible notes.

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.

Warran

ts Issued Concurrently with One-

Year Convertible Notes

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. 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. On

May 24, 2017,

we initiated the Summer

2017

Unit Offering offering promissory notes convertible at

$0.42

per share (see Note

). Since these securities were sold at less than the exercise price of the

July 8, 2016

warrants, the exercise price of the warrants were decreased from

cents per share, and the number of shares issuable under the warrant increased by

219,048

shares to a total of

619,048

shares. The warrants do

not

qualify for equity classification, therefore we recognize the warrants as a derivative liability. As a result, we are required to calculate the fair value at each reporting period and record the change.

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. 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. On

May 24, 2017,

we initiated the Summer

2017

Unit Offering offering promissory notes convertible at

$0.42

per share (see Note

). Since these securities were sold at less than the exercise price of the

December 30, 2016

warrants, the exercise price of the warrants were decreased from

cents per share, and the number of shares issuable under the warrant increased by

314,285

shares to a total of

714,285

shares. The warrants do

not

The fair value of these warrants on

June 30, 2017,

totaled

$570,595

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

three

and

six

months ended

June 30, 2017,

resulted in other income of

$56,352

and

$321,872,

respectively, recorded on our statement of operations. For the additional warrants issued when the exercise price decreased, we recognized

$228,000

of additional interest expense.

2015

Unit Offering Warrants

During the

six

-months ended

June 30, 2016,

pursuant to the terms of our

2015

Unit Offering (see Note

), we issued warrants to purchase up to an aggregate

1,528,571

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.

During the

six

-months ended

June 30, 2016,

the intrinsic and relative fair value of these warrants resulted in

$535,000,

respectively, recorded as a discount on our convertible notes on our consolidated balance sheets.

Warrants Issued

oncurrently with

Line of Credit

During the

six

-months ended

June 30, 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

June 2021.

The relative fair value of warrants issued resulted in

$237,405

discount on the line of credit.

Exercise of Warrants

During the

six

months ended

June 30, 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.

warrants were exercised in the

six

months ended

June 30, 2016.

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

Balance, June 30, 2016	Number of
	Shares			Price Range
Outstanding as of December 31, 2015		13,779,438		$0.125	–	1.00
Issued		1,828,571			0.45
Expired		(183,545	)		0.55
Outstanding as of June 30, 2016		15,424,464		$0.125	–	1.00

Balance, June 30, 201 7	Number of
	Shares			Price Range
Outstanding as of December 31, 2016		20,035,114		$0.125	–	1.00
Issued		990,727		0.42	–	0.70
Exercised		(510,000	)	0.25	–	0.30
Expired		—			—
Outstanding as of June 30, 2017		20,515,841		$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

six

-months ended

June 30:

	2016			2017
Risk free interest rate	1.26	–	1.36%	1.83	–	1.93%
Expected volatility	311	–	315%	293	–	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.