Note

Warrants

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

							Weighted
							a verage		Aggregate
	Warrants		Exercise				p rice per		intrinsic
As of March 31, 2018 :	o utstanding		p rice per share				share		value (1)
Balance, December 31, 2017		22,104,817		$0.125	–	1.00	$	0.45
Issued		2,611,513		0.25	–	0.48		0.35
Balance, March 31, 2018		24,716,330		$0.125	–	1.00	$	0.44	$	—

As of March 31, 2019 :
Balance, December 31, 2018		26,872,430		$0.25	–	1.00	$	0.42
Issued		3,861,041		$0.16	–	0.25	$	0.24
Balance, March 31, 2019		30,733,471		$0.20	–	1.00	$	0.40	$	—

Warrants issued as part of debt extension

March 5, 2019,

we executed amendments extending the maturity dates issued to Vernal Bay and Chappy Bean to

June 6, 2019 (

see Note

). As consideration for this extension, we agreed to reduce the exercise price, and increase the number of shares purchasable, by the warrants held by Vernal Bay and Chappy Bean. Vernal Bay had been issued a warrant to purchase

1,387,500

shares at

$0.25

per share, expiring

September 19, 2023.

We agreed to lower the exercise price to

$0.20

per share, and proportionately increase the number of shares in the warrant to

1,734,375.

By doing so, the maximum investment amount under the warrant of

$346,875

remained the same. Chappy Bean’s warrant to purchase

600,000

shares was similarly modified, such that it now allows for the purchase of

750,000

shares at

$0.20

per share. The reduction in warrant exercise price resulted in a fair value of

$56,000

recorded as loss on debt extinguishment in the

three

months ended

March 31, 2019.

Warrants issued as consent for variable rate debt

January 7

and

January 31, 2019,

Lincoln Park Capital Fund, LLC agreed to waive the provisions of the Purchase Agreement dated

August 25, 2017,

prohibiting variable rate transactions. As consideration for the waivers, we issued to Lincoln Park a warrant to purchase

300,000

shares of our common stock at

$0.25

per share, expiring

five

years from the date of grant. In the event the shares underlying the warrant are

not

registered, the warrant allows the holder to do a “cashless” exercise. The fair value of these warrants totaled

$54,000

and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense in

2019

over the term of the notes. (See Note

Warrants Issued concurrently with the Nine-month note payable

Pursuant to the terms of the OID Offering, in addition to the Note, the investor will receive a warrant to purchase common stock for

$0.25

per share, expiring

years from the date of issuance (the “Warrant”). The number of shares purchasable under the warrant is equal to the

75%

of the principal balance of the note divided by

$0.25

(thus, a

$100,000

investment would yield a note with principal balance of

$125,000,

and a warrant allowing for the purchase of up to

375,000

shares). We issued warrants to purchase

637,500

shares of our common stock. The warrant will allow for cashless exercise so long as the shares underlying the warrant are

not

registered. The Company does

not

have the obligation to register the shares underlying the warrant. The fair value of these warrants totaled

$89,000

and was recorded as a discount on note payable on our consolidated balance sheet and will amortize to interest expense in

2019

over the term of the notes. (See Note

Warrants Issued to One-Year Noteholders

In conjunction with

three

separate investments of

one

-year convertible notes, we issued

three

sets of warrants to purchase an aggregate

400,000

shares to

two

investors. These warrants were issued

July 8, 2016 (

400,000

shares at

$0.65

exercise price) and

December 30, 2016 (

400,000

shares at

$0.75

exercise price).

Each of these warrants contained provisions that required a reduction to the exercise price and increase to the number of warrant shares in the event that we sold our common stock at a lower price than the exercise price (subject to some exceptions). During the

three

months ended

March 31, 2019,

we adjusted downward the warrant exercise price

three

times to

$0.12,

resulting in an increase of

2,426,666

warrants available for exercise. The increase in warrants resulted in a fair value totaling

$342,000,

recorded as a deemed dividend in our statement of stockholders’ equity.

Fair Value – Interest Expense

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. For the determination of expense of warrants issued for services, extinguishment of debt and settlement management also uses the option-pricing model. The principal assumptions we used in applying this model were as follows:

	March 31, 2018				March 31, 2019
Risk free interest rate			2.54%			2.18	–	2.62%
Expected volatility			252%			86	–	110%
Expected dividend yield			—				—
Forfeiture rate			—				—
Expected life in years		5	–	10		2	–	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.