Note 6:

DERIVATIVE LIABILITY - WARRANTs

A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s common stock purchase warrants that are categorized within Level 3 of the fair value hierarchy for the nine months ended 2016 and 2015 is as follows:

Share Purchase Warrants	Weighted Average Inputs for the Period
	For the Nine			For the Nine
	Months Ending			Months Ending
	September 30,			September 30,
Date of valuation	2016			2015
Exercise price	$	1.20		$	7.56
Contractual term (years)		1.3			4.5
Volatility (annual)		105	%		159	%
Risk-free rate		1	%		1	%
Dividend yield (per share)		0	%		0	%

The foregoing assumptions are reviewed quarterly and are subject to change based primarily on management’s assessment of the probability of the events described occurring. Accordingly, changes to these assessments could materially affect the valuations.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The fair value accounting standards define fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:

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Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;

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Level 2 inputs: Inputs, other than quoted prices included in Level 1, that are observable either directly or indirectly; and

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Level 3 inputs: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions.

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheet under Derivative liability – warrants:

	As of September 30, 2016
	Fair Value Measurements
	Fair Value		Level 1		Level 2		Level 3		Total
Derivative liability - warrants	$	29,000		-		-	$	29,000	$	29,000
Total	$	29,000		-		-	$	29,000	$	29,000

	As of December 31, 2015
	Fair Value Measurements
	Fair Value		Level 1		Level 2		Level 3		Total
Derivative liability - warrants	$	26,493,000		-		-	$	26,493,000	$	26,493,000
Total	$	26,493,000		-		-	$	26,493,000	$	26,493,000

There were no transfers between Level 1, 2 or 3 during the nine months ended September 30, 2016.

The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2016:

	Derivative liability – warrants
Balance – December 31, 2015	$	26,493,000
Reclassification of derivative liabilities to equity at exercise date		(5,074,000)
Reclassification of fair value of derivative liabilities to equity on amendment of warrant agreements		(15,465,000)
Change in fair value of warrant liability		(5,925,000)
Balance – September 30, 2016	$	29,000

Warrant Amendment Transaction

On August 10, 2016, the Company and holders of an aggregate of 3,096,665 outstanding Series A Warrants, Series A-1 Warrants, Series C Warrants, Series C-1 Warrants, Series D Warrants, Series D-1 Warrants, Series E Warrants and Series E-1 Warrants entered into warrant amendment agreements (the “Amended Warrants”) in which they agreed to amend the terms of the outstanding series warrants to remove provisions that had previously precluded equity classification treatment on the Company’s balance sheets.

In consideration for such amendment and the exercise of the Series C Warrants and Series C-1 Warrants, the Company issued an aggregate of 750,000 additional shares of common stock to such warrant holders and new five-year warrants to purchase 1,000,000 shares of Company common stock at an exercise price of $7.20 per share. The value of the shares and fair value of the warrants was treated as dividend on the statement of stockholders’ equity of $4.5 million.

The fair value of the Amended Warrants was re-measured immediately prior to the date of amendment with changes in fair value recorded as a gain of $556,000 in the statement of operations and $15.5 million was reclassified to equity.