UNITED STATES  

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2016March 31, 2017

For the transition period from                     to                     

Commission File Number 001-36662

GREAT BASIN SCIENTIFIC, INC.

(Exact name of registrant as specified in its charter)

(801) 990-1055

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed underby Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐     No  ☒

The issuer had 152,683,0551,978,584 shares of common stock outstanding as of November 14, 2016.May 22, 2017.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

GREAT BASIN SCIENTIFIC, INC.

CONDENSED BALANCE SHEETS

September 30, 2016March 31, 2017 and December 31, 20152016

(Unaudited)

See the accompanying notes to condensed financial statements

GREAT BASIN SCIENTIFIC, INC.

CONDENSED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

See the accompanying notes to condensed financial statements

GREAT BASIN SCIENTIFIC, INC.

CONDENSED STATEMENTS OF OPERATIONSCASH FLOWS

For the Three and Nine Months Ended September 30,March 31, 2017 and 2016 and 2015

(Unaudited)

See the accompanying notes to condensed financial statements

GREAT BASIN SCIENTIFIC, INC.

CONDENSED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2016 and 2015

(Unaudited)

See the accompanying notes to condensed financial statements

GREAT BASIN SCIENTIFIC, INC.

Notes to Condensed Financial Statements (Unaudited)

NOTE 1 DESCRIPTION OF BUSINESS

Great Basin Scientific, Inc. (the “Company”) (d.b.a., Great Basin Corporation) is a Delaware corporation headquartered in Salt Lake City, Utah. The Company was originally incorporated as Diagnostic Micro Arrays, Inc., a Nevada corporation, on June 27, 2003. The Company changed its name to Great Basin Scientific, Inc. on April 19, 2006. On August 12, 2008, the Company took steps to change its corporate domicile from Nevada to Delaware by forming Great Basin Scientific, Inc., a Delaware corporation, and on August 29, 2008, Great Basin Scientific, Inc., a Nevada corporation, was merged with and into Great Basin Scientific, Inc., a Delaware corporation, wherein the Delaware corporation was the sole surviving entity.

The Company is a molecular diagnostic testing company focused on the development and commercialization of its patented, molecular diagnostic platform designed to test for infectious disease, especially hospital-acquired infections. The Company believes that laboratories in small to medium sized hospital laboratories,hospitals, those under 400 beds, are in need of simpler and more affordable molecular diagnostic testing methods. The Company markets a system that combines both affordability and ease-of-use, when compared to other commercially available molecular testing methods, which it believes will accelerate the adoption of molecular testing in small to medium sized hospitals. The system includes an analyzer, which is provided for our customers’ use without charge in the United States, and a diagnostic cartridge, which is sold to our customers. The testing platform has the capability to identify up to 64 individual targets at one time. If the test identifies one to three targets, they are referred to as low-plex tests, or tests, and if they identify four or more targets they are referred to as multi-plex panels, or panels. The Company currently has fourfive commercially available tests, the first for clostridium difficile, or C. diff, which received clearance from the Food and Drug Administration, or FDA, in April 2012 and launched commercially in June 2012, the second for Group B Strep, which received clearance from the FDA in April 2015 and launched commercially in June 2015, the third for Shiga Toxin producing E. coli or STEC, which received clearance from the FDA in March 2016 and launched commercially in August 2016, and the fourth for Staphylococcus Identification and Resistance Panel, or Staph ID/R panel, which received FDA clearance in March 2016 and launched commercially in September 2016.2016 and the fifth test known as our Bordatella Direct Test (Pertussis) received FDA clearance in March 2017 and launched commercially in May 2017. Our customers consist of hospitals, clinics, laboratories and other healthcare providers in the United States, the European Union and New Zealand.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These condensed unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with generally accepted accounting principles in the United States of America (“GAAP”) to reflect the financial position, results of operations and cash flows of the Company as of September 30, 2016 and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information.March 31, 2017. The accompanying condensed financial statements and notes are unaudited. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements for the year ended December 31, 20152016 and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2016,March 31, 2017, its results of operations for the three and nine months ended September 30, 2016 and 2015,March 31, 2017, and cash flows for the ninethree months ended September 30, 2016March 31, 2017 and 2015.2016. The results for the three and nine months ended September 30, 2016March 31, 2017 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

Net Income (Loss) per Common Share

Basic loss per share (“EPS”) is computed by dividing net loss (the numerator) by the weighted average number of common shares outstanding for the period (the denominator). Diluted EPS is computed by dividing net loss by the weighted average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include convertible preferred stock, convertible notes, stock options and warrants. The number of potential common shares outstanding is computed using the treasury stock method.

As the Company has incurred losses for the three months ended September 30,March 31, 2016, and the nine months ended September 30, 2016 and 2015, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of September 30,March 31, 2016, and 2015, there were 51,002,236 and 272 potentially dilutive shares respectively.

The Company had net income for the three months ended September 30, 2015March 31, 2017 and therefore potentially dilutive shares must be added into the diluted net income (loss) per share calculations.  The Series F Preferred Stock is convertible into 4,308,824 potentially dilutive shares, however these shares are anti-dilutive and are not included in the calculation.

The components of basic and diluted net income (loss) per share for the three months ended September 30, 2015March 31, 2017 are as follows:

Reverse Stock Split

On March 30, 2016,April 10, 2017, the Company effected a reverse stock split of the Company’s common stock whereby each thirty-five shares of common stock were replaced with one share of common stock (with no fractional shares issued). On September 16, 2016, the Company effected another reverse stock split of the Company’s common stock whereby each eightytwo thousand shares of common stock were replaced with one share of common stock (with no fractional shares issued).  The par value and the number of authorized shares of the common stock were not adjusted. All common share and per share amounts for all periods presented in these financial statements have been adjusted retroactively to reflect thesethis reverse stock splits.split. The quantity of Series E and Series F Preferred Stock and all warrants and employee and other options were not included in the reverse stock split and their outstanding quantities have not been adjusted. However, the conversion and exchange ratios were adjusted for the effect of the reverse stock splits such that upon conversion each 168,000split. For the number of shares of Series E Preferred Stock will now be converted into four shares of common stock and each 168,000 of Class A, Class B, Series B, common warrants and options will now be exercisable into one share of common stock. The Series D and 2015 Subordination Warrants conversion ratio has been adjusted such that each 2,800security is convertible into see NOTE 7 PREFERRED STOCK, NOTE 9 WARRANTS and NOTE 11 EMPLOYEE STOCK OPTIONS.  

Change in Estimated Useful Lives of Analyzers

During the three months ended March 31, 2017, management determined that the actual life of analyzers used internally and at customer sites was longer than the estimated useful life used for depreciation purposes in the Company’s financial statements.  As a result, effective January 1, 2017, the Company changed its estimate of the Series D and Subordination Warrantsuseful life of its analyzers to better reflect the estimated period during which these assets will now be exercisable into one share of common stock.remain in service.  The Series G, Series H and 2016 Subordination Warrants conversion ratio has been adjusted such that each 80estimated useful life of the Series G, Series Hanalyzers that previously was five years was increased to seven years.  The effect of this change in estimate was to reduce total depreciation expense, and 2016 Subordination Warrants will now be exercisable into oneincrease net income for the quarter ended March 31, 2017 by $180,680, and to increase basic and diluted net income per share of common stock (see NOTE 10 WARRANTS).  by $0.42 and $0.01, respectively.

Fair Value ofLiability Financial Instruments

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under FASB ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FASB ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, with the first two inputs considered observable and the last input considered unobservable, that may be used to measure fair value as follows:

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company issued certain common stock warrants, employee stock options and convertible notes that are required to be recorded at fair value measured at the transaction date. In addition, certain other warrants to purchase common stock and convertible notes qualify as derivative liabilities and are therefore required to be recorded at fair value measured at the transaction date and again at each reporting period end. The fair value of these warrants and conversion was determined using estimates and assumptions that are not readily available in public markets and the Company has designated this liability as Level 3. The assumptions used for the fair value calculation as well as the changes in the value of the derivative liability are shown in NOTE 11 DERIVATIVE LIABILITY.

Derivative Instruments

The Company accounts for derivative financial instruments under the provisions of ASCAccounting Standards Codification (“ASC”) 815 Derivatives and HedgingHedging.. ASC 815 requires the Company to record derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings. As a result of certain terms, conditions and features included in certain common stock warrants granted by the Company as well as the conversion features in the convertible notes, those provisions are required to be accounted for as derivatives at estimated fair value, with changes in fair value recognized in earnings (see NOTE 10 FAIR VALUE LIABILITIES).

The Company accounts for other fair value liability financial instruments under the provisions of ASC 480 Distinguishing Liabilities from Equity. ASC 480 requires the Company to record certain liabilities at their fair value.  Changes in the fair value of these liabilities are recognized in earnings.  As a result of certain terms, conditions and features included in the Series F Preferred Stock issued by the Company, it is required to be accounted for as a liability at estimated fair value, with changes in fair value recognized in earnings (see NOTE 7 PREFERRED STOCK).

Fair Value of Financial Instruments

The Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are:

Level 1—Quoted market prices in active markets for identical assets or liabilities;

Level 2—Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable, such as interest rate and yield curves, and market-corroborated inputs); and

Level 3—Unobservable inputs in which there is little or no market data, which require the reporting unit to develop its own assumptions.

The internal models used to determine fair value for these Level 3 instruments use certain significant unobservable inputs and their use requires determination of relevant inputs and assumptions. Accordingly, changes in these unobservable inputs may have a significant impact on fair value. Such inputs include risk free interest rate, expected average life, expected dividend yield, and expected volatility. These Level 3 liabilities would decrease (increase) in value based upon an increase (decrease) in risk free interest rate and expected dividend yield. Conversely, the fair value of these Level 3 liabilities would generally increase (decrease) in value if the expected average life or expected volatility were to increase (decrease).

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASBFinancial Accounting Standards Board (“FASB”) that are adopted by the Company as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption. The Company has elected to use the extended transition period provided in the JOBS Act for complying with new or revised accounting standards that have different effective dates for public and private companies. The new accounting pronouncements below indicate the public company transition dates and the Company’s plans for adoption of these standards

In FebruaryNovember 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. Historically, there has been a diversity in practice in how changes in restricted cash are presented and classified in the statement of cash flows. The amendments in this update require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore,

amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company notes that this guidance applies to its reporting requirements at present, and will implement the new guidance beginning in 2018.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The objective of this update is to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods and is to be applied utilizing a retrospective approach. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The objective of this update is to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company has adopted this standard and the effects are reflected in its financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires recognition of leased assets and liabilities on the balance sheet and disclosing key information about leasing arrangements.  This update is effective for annual periods and interim periods with those periods beginning after December 15, 2018.  The Company is evaluating the impacthas approximately $3 million of operating lease obligations as of December 31, 2016 (see NOTE 4 LEASE COMMITMENTS) and upon adoption of this standard on its financial statements.it will record a right-of-use asset and lease liability for present value of these leases. However, the statement of operations recognition of lease expenses is not expected to change from the current methodology.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, that simplifies the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost or net realizable value test. The ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.  Early adoption is permitted. The Company is still evaluating the impacthas adopted this standard will have onand the effects are reflected in its financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest – Imputation of Interest, Simplifying the Presentation of Debt Issuance Cost. This standard provides guidance on the balance sheet presentation for debt issuance costs and debt discounts and debt premiums. To simplify the presentation of debt issuance costs, this standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This ASU is effective for fiscal years beginning after December 15, 2015. The Company has adopted this standard, and concluded a prior period reclassification was unnecessary.  The effects of adopting the effectsstandard are reflected in its financial statements and related disclosures.

In August 2014, the FASB issued ASU No. 2014-15 Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going

concern. The update is effective for annual periods ending after December 15, 2016, and interim periods thereafter. Early adoption is permitted. The impact on the Company’s financial statements of adopting ASU 2014-15 is currently being assessed by management.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers,Customers, which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled to those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. In April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing,, which clarified various aspects of the core principle in ASU No. 2014-09 pertaining to identifying promised goods and services.  In May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients,, which clarified certain consideration collectability requirements described in ASU No. 2014-09.  In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which addressed several narrow aspects of the guidance included in ASU No. 2014-09.  All threefour standards arewere originally effective for annual periods beginning after December 15, 2016, and interim periods therein, and shallwere to be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption.  In AprilAugust 2015, the FASB deferred the effective date of ASU 2014-09 to fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2014-09, ASU 2016-10, ASU 2016-12, and ASU 2016-122016-20 on its financial statements.

NOTE 3 GOING CONCERN

The Company’s condensed unaudited financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations and negative operating cash flows which raise substantial doubt about the Company’s ability to continue as a going

concern.  TheAlthough, due to the change in value of our fair value liabilities, the Company sustained ahad net lossincome for the ninethree months ended September 30, 2016March 31, 2017 of $83.0$21.5 million andit incurred a net loss for the year ended December 31, 20152016 of $57.9$89.1 million, a net loss from operations for the three months ended March 31, 2017 of $6.4 million and has an accumulated deficit of $204.9$189.5 million as of September 30, 2016. We haveMarch 31, 2017. The Company has limited liquidity and havehas not yet established a stabilized source of revenue sufficient to cover operating costs and development needs. Accordingly, our continuation as a going concern is dependent upon our ability to generate greater revenue through increased sales and/or our ability to raise additional funds through the capital markets.  Whether and when the Company can attain profitability and positive cash flows from operations or obtain additional financing is uncertain.

The Company has been able to obtain financing in order to fund its short term working capital and development needs. In February 2016, the Company obtained financing byby: 1) completing atwo follow-on offeringofferings for an aggregate net proceeds of $5.0 million.  In May 2016,$10.3 million; 2) holders of the senior secured convertible notes issued in 2015 Notes voluntarily agreed to remove restrictions on the Company’s use of $2.0$13.8 million previously funded to the Company and authorized the release of those funds from the restricted cash accounts of the Company. In June 2016, the Company obtained additional financing by completing another follow-on offering for net proceeds of $5.3 million. InCompany; 3) in July 2016, the Company issued additional senior secured convertible notesthe 2016 Notes and received $68.0 million in total gross proceeds, of which $5.4 million in net proceeds was immediately available to the Company and $62.0 million was placed in restricted accounts. In Septemberaccounts, and 4) in December 2016, holders of the senior secured convertible notes issued in 20152016 Notes voluntarily agreed to remove restrictions on the Company’s use of $4.7$2.6 million previously funded to the Company and authorized the release of those funds from the restricted cash accounts of the Company.

  During the three months ended March 31, 2017, holders of 2016 Notes voluntarily agreed to remove restrictions on the Company’s use of an aggregate of approximately $3.5 million in cash previously funded to the Company and authorized the release of those funds from the restricted accounts. In addition, the Company and the holders of 2016 Notes entered into an agreement, pursuant to which the Company agreed to redeem $38.9 million of the 2016 Notes held by each of the holders for an aggregate redemption price of $38.9 million, which will satisfy such redemption note in full.  The Company has been able to obtain financingpaid the redemption price for the redemption notes from cash held in the pastrestricted accounts of the Company. As of March 31, 2017, cash in the amount of $17.0 million was still being held in restricted accounts. Subsequent to meet its short-term needs through private placementsMarch 31, 2017, $14.5 million of convertible preferred securities, the salerestricted cash was returned to the note holders as redemptions on the outstanding notes and leaseback of equipment, an initial public offering (“IPO”), additional follow-on offerings,$2.5 million had the restrictions voluntarily removed and convertible debt financings. those funds were authorized to be released from the restricted accounts to the Company. There are no longer any funds in the restricted cash accounts.

The Company will continue to seek funding through the issuance of additional equity securities or debt financing, or a combination of the two. Any proceeds received from these items could provide the needed funds for continued operations and development programs. The Company can provide no assurance that it will be able to obtain sufficient additional financing that it needs to alleviate doubt about its ability to continue as a going concern. If the Company is able to obtain sufficient additional financing proceeds, the Company cannot be certain that this additional financing will be available on acceptable terms, if at all.terms. To the extent the Company raises additional funds by issuing equity securities or convertible debt, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to obtain additional financings, the impact on the Company’s operations will be material and adverse.

NOTE 4 LEASE COMMITMENTS

Capital Leases

The Company has entered into two lease agreements for the sale-leaseback of molecular diagnostic analyzers. The first agreement was entered into in November 2013 and provided for the sale of 125 molecular diagnostic analyzers for a sales price of $2,500,000, which

are being leased back for a base period of thirty-six monthly payments of $74,875. The second agreement was entered into in April 2014 for the sale of 75 molecular diagnostic analyzers for a sales price of $1,500,000, which are being leased back for a base period of twenty-four monthly payments of $64,665. At the end of each lease term, the leases shall automatically renew for twelve additional months unless certain conditions are met. As such, the Company is amortizing the capital lease over a forty-eight month period for the first agreement and a thirty-six month period for the second agreement. The leases are accounted for as a capital lease sale-leaseback transaction in accordance with ASC 840, “Leases”.  Subsequent to March 31, 2017, the Company repurchased the two sets of analyzers and the leases were cancelled (see NOTE 13 SUBSEQUENT EVENTS).

In July 2016, the Company entered into a lease agreement for equipment in the amount of $80,138 with monthly payments of $1,543 over a 5 year period.  The lease contains a bargain purchase option at the end of the lease and accordingly the lease is accounted for as a capital lease in accordance with ASC 840, “Leases”.

Operating Leases

The Company leases approximately 35,540 square feet of office space located in Salt Lake City, Utah for use as the executive offices and labs. Base rent payments due under the lease are expected to be approximately $3,472,875$3,454,611 in the aggregate over the term of the lease of 65 months that began on December 1, 2015. The Company also leases approximately 33,000 square feet of building space at

another location in Salt Lake City, Utah for use primarily as manufacturing space and labs. Base rentRent payments due under these leases total $21,226$25,926 per month. The leases expireexpired on April 30, 2017.2017 and the Company is currently on a month to month extension until a new lease agreement is reached. The Company also leases certain office equipment such as copiers and printers under operating lease agreements that expire at various dates.

Amounts charged to expense under operating leases were $237,376$239,428 and $66,514$165,045 for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively and $640,741 and $210,416 for the nine months ended September 30, 2016 and 2015, respectively.

NOTE 5 NOTES PAYABLE

The Company purchased certain machinery and equipment under two note payable agreements in January and February 2013. During the nine months ended September 30, 2016, both notes were extinguished by making the final payments on the notes in the amount of $5,693.

NOTE 65 CONVERTIBLE NOTES PAYABLE

December 2015 Transaction

On December 30, 2015, the Company entered into a Securities Purchase Agreement (“SPA”) with certain investors pursuant to which it agreed to issue $22.1 million in senior secured convertible notes (“2015 Notes”) and Series D Warrants (further described below). $20 million of the 2015 Notes were issued for cash proceeds totaling $18.4 million with an original issue discount in the amount of $1.6 million which is equal to sixteen (16) months of simple interest at a rate of six percent (6.0%) per annum on the aggregate principal of the 2015 Notes (assuming, that the entire aggregate original principal amount remains outstanding through the maturity date). $2.1 million of the 2015 Notes were issued to extinguish 1,050,000 outstanding Series C Warrants at an extinguishment value of $2.00 per warrant. The 2015 Notes are senior secured obligations of the Company and will rank senior to all outstanding and future indebtedness of the Company. They are secured by a first priority perfected security interest (subject to permitted liens as defined in the 2015 Notes) in all of the current and future assets of the Company. The 2015 Notes contain standard and customary events of default and the entire principal balance is subject to the default and redemption provisions contained in the 2015 Notes, regardless of whether or not any of the proceeds have been released from the Company’s restricted accounts.

In connection with the issuance of the 2015 Notes under the SPA, the Company issued Series D Warrants (the “Series D Warrants”), exercisable to acquire 1,252 shares of Common Stock and Subordination Warrants (the “2015 Subordination Warrants”), exercisable to acquire 38 shares of Common Stock, both which are subject to a one time adjustment on December 31, 2016 under the terms of the Series D and 2015 Subordination Warrants (see NOTE 10 WARRANTS). Each Series D and 2015 Subordination Warrant became exercisable by the holder beginning six months after December 30, 2015 and continues for a period five years thereafter. The Series D and 2015 Subordination Warrants have a provision that adjusts the exercise price upon certain dilutive events. As of September 30, 2016, pursuant to the terms of the warrant agreement, the exercise price of the Series D and 2015 Subordination Warrants has been adjusted such that the exercise of 2,800 warrants with an aggregate exercise price of $126.40 will result in the issuance of one share of common stock.

The Company has agreed to make amortization payments with respect to the 2015 Notes in twelve (12) equal installments beginning four (4) months after the original date of issuance of December 30, 2015 (each, an “Installment Date”). On each installment date, assuming certain equity conditions are met, the installment payment shall automatically be converted into shares of Common Stock at a conversion rate defined in the agreement.  As of April 29, 2016, the Company was not able to bring a registration statement covering the resale of the shares of common stock issuable under the terms of the 2015 Notes effective and therefore did not satisfy the equity

conditions under the 2015 Notes to permit settlement of installment payments through conversion into shares of common stock. The holders of the 2015 Notes deferred the three installment payments due on April 29, 2016, May 31, 2016 and June 30, 2016, respectively to the installment payment with a due date of July 29, 2016. During the three months ended September 30, 2016, approximately $8.0 million of installment payments (through the conversion into 2,119,366 shares of common stock) were made bringing the principal note balance of the 2015 Notes down to approximately $14.1 million.  Given the conversion feature is bifurcated from the host instrument, conversions are deemed to be extinguishments for accounting purposes and accordingly, a loss on extinguishment of debt in the amount of $17,292,463 was recognized during the three months ended September 30, 2016.  

A summary of the accounting for these extinguishments for the three months ended September 30, 2016 is as follows:

Under the terms of the 2015 Notes, at closing the Company received an initial tranche of $4.6 million for immediate use for general corporate purposes. The remaining cash proceeds of $13.8 million was held in restricted accounts to be released to the Company from the Company’s restricted accounts in subsequent equal tranches subject to certain equity conditions. In May 2016 and August 2016, the holders of the 2015 Notes voluntarily removed restrictions on the Company’s use of an aggregate of $2.0 million and $4.7 million, respectively, that was previously funded to the Company and authorized the release of those funds from the restricted cash accounts of the Company. As of September 30, 2016 the remaining cash in the amount of $7.1 million is still being held in a restricted account and will be released to the Company subject to certain equity conditions.

As of September 30, 2016, the 2015 Notes are convertible at the option of the holder at $126.40 per share.  The Company has a conversion right related to the required installment payments where the Company can convert the installment payments at the lower of 80% of the arithmetic average of the lower of: (A) the 3 lowest volume weighted average price (VWAP) days in the prior 20 days or (B) the VWAP of the common stock on the trading day preceding the applicable date of determination.  Both the conversion right of the holder and the Company is subject to a reset clause if the Company issues or sells common stock at a lower price than the applicable conversion rate at such time with both conversion features being subject to a $0.20 floor.  At September 30, 2016, the most advantageous conversion term is a conversion price of $1.87 which would convert the remaining principal of the 2015 Note into 7,547,317 shares of common stock.  

The Company determined the conversion feature in the 2015 Notes represents an embedded derivative that requires bifurcation due to the ratchet provision described above related to the conversion feature. The provisions in the Series D Warrants also require the Company to account for the warrants as derivative liabilities. The original issue discount, the fair value of the embedded conversion feature, the fair value of the Series D Warrants and the debt issuance costs are all together considered the debt discount. The Company recorded a debt discount in the amount of $20 million which is being amortized over the life of the 2015 Notes using the effective interest method. For the nine months ended September 30, 2016, $14,950,080 of the debt discount had been amortized to interest expense and $2,508,882 of the debt discount has been extinguished through the conversions during the period.

The following table summarizes the 2015 Notes outstanding at September 30, 2016: 

July 2016 Transaction

On July 1, 2016, the Company entered into a Securities Purchase Agreement (“July SPA”) with certain investors pursuant to which it agreed to issue $75 million in senior secured convertible notes (“2016 Notes”) and Series H Warrants (further described below). The 2016 Notes were originally convertible into 468,750 shares of Common Stock at a price equal to $160.00 per share, subject to adjustment for certain dilutive events. The 2016 Notes were issued for cash proceeds totaling $68.0 million with an original issue discount in the amount of $7.0 million with no stated interest rate.  The 2016 Notes are senior secured obligations of the Company and

will rank senior to all outstanding and future indebtedness of the Company. They are secured by a first priority perfected security interest (subject to the priority interest of the 2015 Notes and permitted liens as defined in the 2016 Notes) in all of the current and future assets of the Company. The 2016 Notes contain standard and customary events of default and the entire principal balance is subject to the default and redemption provisions contained in the 2016 Notes, regardless of whether or not any of the proceeds have been released from the Company’s restricted accounts.

In connection with the issuance of the 2016 Notes under the July SPA, the Company issued Series H Warrants (the “Series H Warrants”), exercisable to acquire 703,1257 shares of Common Stockcommon stock and Subordination Warrants (the “2016 Subordination Warrants”), exercisable to acquire 21,0942 shares of Common Stockcommon stock (see NOTE 109 WARRANTS). The Series H and 2016 Subordination Warrants becomebecame exercisable by the holder beginning six months after July 1, 2016 and continuescontinue for a period of five years thereafter. The Series H and 2016 Subordination Warrants also have a provision that adjusts the exercise price upon certain dilutive events.  As of September 30, 2016,March 31, 2017, pursuant to the terms of the warrant agreement, the exercise price of the Series H and 2016 Subordination Warrants are such that the exercise of 80 warrants withhave an aggregate exercise price of $166.40 will result in the issuance of one$1.36 per share of common stock.

The

Pursuant to the terms of the 2016 Notes, the Company hasoriginally agreed to make amortization payments with respect to the 2016 Notes in fifteen (15) equal installments beginning January 30, 2017. On each installment date, assuming certain equity conditions arewere met, the installment payment shallwould automatically be converted into shares of Common Stock at a conversion rate defined in the agreement. In January 2017, the terms of the 2016 Notes were amended.  Pursuant to the terms of the amendment, Section 8 of the 2016 Notes, which contained the provisions of the 2016 Notes dealing with installment payments, the Company’s ability to elect to convert installment payments, delivery of pre-installment conversion shares in relation to converted installment payments and the ability of noteholders to accelerate or defer installment amounts was eliminated and any reference to any defined terms appearing elsewhere in the 2016 Notes that related solely to Section 8 and that were not otherwise used in the 2016 Notes were deleted. Additionally, pursuant to the amendment, Section 3(b)(ii) of the 2016 Notes which set forth the conversion price at which optional conversions at the election of the holder of the 2016 Notes could be made was also amended.

During the three months ended March 31, 2017, approximately $3.9 million of installment payments were made through conversions into 762,672 shares of common stock. In addition, the Company and the holders of the 2016 Notes entered into an agreement, pursuant to which the Company agreed to redeem $38.9 million of the 2016 Notes held by the holders for an aggregate redemption price of $38.9 million, which satisfied such redemption note in full.  The Company paid the redemption price for the redemption notes from cash held in the restricted accounts of the Company.  As of March 31, 2017 the principal note balance of the 2016 Notes was approximately $32.2 million. Given the conversion feature of the 2016 Notes is bifurcated from the host instrument, conversions as well as redemptions are deemed to be extinguishments for accounting purposes and accordingly, a gain on extinguishment of debt in the amount of $602,555 was recognized during the three months ended March 31, 2017.

A summary of the conversions and redemptions accounted as extinguishments for the three months ended March 31, 2017 is as follows:

Under the terms of the 2016 Notes, at closing the Company received an initial tranche of $6.0 million for immediate use for general corporate purposes. The remaining cash proceeds of $62$62.0 million are being heldwas placed in restricted accounts and willto be released to the Company from the restricted accounts in subsequent equal tranches subject to certain equity conditions. In December 2016, the noteholders voluntarily removed restrictions on the Company’s use of an aggregate of approximately $2.6 million previously funded to the Company and authorized the release of those funds from the restricted accounts of the Company. During the three months ended March 31, 2017, the noteholders voluntarily removed restrictions on the Company’s use of an aggregate of approximately $3.5 million previously funded to the Company and authorized the release of those funds from the restricted accounts of the Company. As of September 30, 2016,March 31, 2017, after the voluntary release of restricted cash in the amount of $6.1 million and note redemptions in the amount of $38.9 million, the remaining cash in the amount of $62.0$17.0 million is still being held in restricted accounts and will be released to the Company subject to certain equity conditions and the terms of the 2016 Notes.

As of September 30,March 31, 2017 the 2016 Notes conversion price is determined by the lowest of : (x) $0.50 per share, (y) 85% of the lower of (I) the lowest weighted average price of the common stock and (II) the lowest closing bid price of the common stock, in each case, during the five (5) consecutive trading day period ending on, and including, the trading day of the conversion, and (z) 85% of the weighted average price of the common stock during the period beginning at 9:30:01 a.m. New York time and ending at 1:00:00 p.m. New York time on the trading day of the conversion.  As of March 31, 2017, the 2016 Notes are convertible at the option of the holder at $160$1.90 per share.  The Company has a conversion right related to the required installment payments where the Company can convert the installments payments (subject to a floor of $1.00) at: (a) the prevailing holder conversion price; (b) 80% of the arithmetic average of the 3 lowest volume weighted average price (VWAP) days in the prior 20 days; and (c) the weighted average value of the common stock on the trading day preceding the installment payment date.  Both the conversion right of the holder and the Company is subject to a reset clause if the Company issues or sells common stock at a lower price than the applicable conversion rate at such time (not subject to the $1.00 floor).  At September 30, 2016, the most advantageous conversion term is a conversion price of $1.87share which would convert the note into 40,154,19216,936,627 shares of common stock.  Subsequent to March 31, 2017, the Company restructured its outstanding debt on the 2016 Notes (see NOTE 13 SUBSEQUENT EVENTS).

The Company determined the conversion feature in the 2016 Notes represents an embedded derivative that requires bifurcation due to the ratchet provision described above related to the conversion feature. The provisions inAlthough the Series H andembedded conversion feature is bifurcated from the 2016 Subordination Warrants also requireNotes for measurement purposes, the Companyembedded derivative is combined, only to accountthe extent of the face value of the note, with the 2016 Notes for presentation purposes on the warrants asbalance sheet. As of March 31, 2017, the embedded conversion feature derivative liabilities. The original issue discount, the fair valueliability was determined to be $16.0 million (see NOTE 10 FAIR VALUE LIABILITIES).  $11.4 million of the embedded conversion feature the fair value of the Series H andis combined with 2016 Subordination WarrantsNotes and the debt issuance costs are all together considered the debt discount. The Company recorded a debt discountremaining derivative liability in the amount of $75.0$4.6 million which is being amortized overincluded in long-term derivative liability for presentation purposes on the life of the note using the effective interest method. For the three months ended September 30, 2016, $15,532,228 of the debt discount had been amortized to interest expense.

balance sheet.  The following table summarizes the balance sheet presentation of the 2016 Notes outstanding at September 30, 2016: March 31, 2017: 

The fair values of the derivative embedded conversion feature and derivative Series H warrants (including the 2016 Subordination Warrants) were approximately $80.6 million and $101.6 million, respectively (see NOTE 11 DERIVATIVE LIABILITIES).   The derivative amounts in excess of proceeds received on the 2016 Notes was approximately $119.2 million which was recognized as a day one cost of capital and accordingly charged to interest expense during the three months ended September 30, 2016.

NOTE 76 NOTES PAYABLE – RELATED PARTY

In July 2014, the Company entered into a note agreement for $500,000 with Spring Forth Investments, LLC a company owned by Mr. David Spafford, a director. The original maturity date for the note was July 18, 2015, which was extended by the Company to July 18, 2016 by giving notice and paying an extension fee of $10,000. The note was again extended by the Company to July 18, 2017.  The note pays interest only on a monthly basis at an annual rate of 20% and is paid monthly.with the full principal of $500,000 due at maturity. The Company prepaid the last three months of interest for a total of $25,000 at the time of issuance of the note. As additional consideration for the note, the Company issued 4,000,000 Series D preferred stock units (which were separable into 4,000,000 shares of Series D preferred stock, 20,000 Class A warrants to purchase 1 share of common stock at $448.00$268.8 million per share and 20,000 Class B warrants to purchase 1 sharesshare of common stock at $448.00$268.8 million per share) at a value of $100,000 or $0.025 per unit. The 4,000,000 shares of

Series D Preferred Stock were converted into 1 share of Common Stock.common stock. The Series D preferred stock units were accounted as a debt discount which has been fully amortized.  

NOTE 87 PREFERRED STOCK

The Company hadhas 5,000,000 shares of preferred stock authorized at a par value of $0.001 per share as of September 30, 2016.March 31, 2017. The Company has designated two classes of preferred stock, the Series E Preferred Stock and the Series F Preferred Stock.  As of September 30, 2016March 31, 2017 there wereare 74,380 shares of Series E Preferred Stock (recorded in equity) and 5,860 shares of Series F Preferred Stock (recorded as a liability) issued and outstanding which are convertible atoutstanding. The preferred stock may be issued from time to time by the optionboard of directors as shares of one or more classes or series with authority to fix the designation and relative powers, including voting powers, preferences, rights, qualifications, limitations, and restrictions relating to the shares of each class or series.

Series E Preferred Stock

The Company issued the Series E Preferred Stock in February 2015 as part of a follow-on public offering. The Series E Convertible Preferred Stock has no voting rights. An amendment to the terms of the Series E Preferred Stock only requires the vote of the holders into 142of Series E Preferred Stock. With respect to payment of dividends and distribution of assets upon liquidation or dissolution or winding up of the Company, the Series E Preferred Stock ranks equal to the common stock of the Company. No sinking fund has been established for the retirement or redemption of the preferred stock. As such, the Series E Preferred Stock is not subject to any restriction on the repurchase or redemption of shares by the Company due to an arrearage in the payment of common stock.  Duringdividends or sinking fund installments. The Series E Preferred Stock also has no liquidation rights or preemption rights, and there are no special classifications of our board of directors related to the nine months ended September 30, 2016, 13,967Series E Preferred Stock.

As of March 31, 2017 there are 74,380 shares of Series E Preferred Stock were converted(recorded as equity) issued and outstanding that are convertible into 1 share100 shares of common stock.

Series F Preferred Stock

The Company issued the Series F Preferred Stock in November 2016 in exchange for the extinguishment of a convertible note. The  Series F Preferred Stock has a stated value of $1,000 and a par value of $0.001 per share. The Series F Preferred Stock ranks senior to the common stock and shall be entitled to dividends, on an as converted basis, with the holders of our common stock, but will not accrue additional dividends unless certain events, as defined in the Series F Preferred Stock, have occurred and are continuing, in which case dividends will accrue at a default rate of 10% per annum. The holders of the Series F Preferred Stock have the right to vote with holders of shares of our common stock, voting together as one class on all matters, with each preferred share entitling the holder thereof to cast that number of votes per share on an as converted basis.

The Series F Preferred Stock was initially convertible at the election of the holder into shares of our common stock at a conversion price equal to $12,000 per share.  From and after July 3, 2017, the Series F Preferred Stock shall be convertible at a conversion price equal to 85% of the arithmetic average, in each case, of the lower of (i) the three lowest daily weighted average prices of the our common stock during the twenty (20) consecutive trading day period ending on the trading day immediately preceding the date of determination and (iii) the weighted average price of the our common stock on the trading day immediately preceding the date of determination.  On November 3, 2018, so long as certain events do not exist, any remaining Series F Preferred Stock then outstanding shall be converted into shares of our common stock at a conversion price of $12,000 per share. In each case, the exercise price is subject to certain adjustments upon the occurrence of certain dilutive events, including the issuance of certain options or convertible securities, and upon the occurrence of certain corporate events, including stock splits and dividends. At any time after the issue of the Series F Preferred Stock, so long as there has been no failure of the equity conditions during the applicable measurement periods, the Company shall have the right to redeem all, but not less than all, of the conversion amount then remaining under the Preferred Shares at a price equal to the greater of (x) 125% of the conversion amount being redeemed and (y) the product of (A) the conversion amount being redeemed and (B) the quotient determined by dividing (I) the greatest closing price of the shares of our common stock during the period beginning on the date immediately preceding the Company’s notice of redemption and ending on the Company redemption date, by (II) the lowest conversion price in effect during such period.

The Company evaluated the Series F Preferred Stock to determine the proper accounting under ASC 480 – Distinguishing Liabilities from Equity (“ASC 480”).  The Company has concluded that the Series F Preferred Stock is within the scope of ASC 480 as it predominantly represents an unconditional obligation to issue a variable number of common shares for a fixed monetary amount. Accordingly, it is are accounted for as a liability in the financial statements and measured at fair value at each reporting period with any change in fair value to be recorded in earnings.  There were no conversions of Series F Preferred Stock during the three months

ended March 31, 2017.  As of March 31, 2017, there are 5,860 shares of Series F Preferred Stock outstanding convertible into 4,308,824 shares of common stock at a conversion price of $1.36 per share.  The Company is accounting for the Series F Preferred Stock as a liability on the financial statements and has determined the period end fair value to be $11,191,652 (see NOTE 10 FAIR VALUE LIABILITIES). Subsequent to March 31, 2017, the Company restructured and effected the conversion of a portion of the Series F Preferred Stock (see NOTE 13 SUBSEQUENT EVENTS).

NOTE 98 COMMON STOCK

The Company had 200,000,0001,500,000,000 shares of common stock authorized at a par value of $0.0001 per share as of September 30, 2016.March 31, 2017. As of September 30, 2016March 31, 2017 there were 2,536,564763,612 shares of common stock issued and outstanding. The Company has reserved 120,000,000 of authorized but unissued shares of common stock for issuance pursuant to the two convertible notes and associated warrants.

During the nine months ended September 30, 2016, the Company issued 19,012 shares of common stock pursuant to the cashless exercise of 5,091,815 Series C Warrants.

During the nine months ended September 30, 2016, the Company issued 4,437 shares of common stock pursuant to the cash exercise of 121,540 Underwriter Unit Purchase Options at an exercise price of $11.00 for total proceeds of $1,335,950.  Upon exercise of these options, 121,540 shares of Series E Convertible Preferred Stock were issued and immediately converted into 3 shares of common stock and 972,320 Series C Warrants were issued and immediately exercised pursuant to the cashless exercise provision into 4,434 shares of common stock.

During the nine months ended September 30, 2016, the Company issued 1 share of common stock pursuant to the conversion of 13,967 shares of Series E Convertible preferred stock (see NOTE 8 PREFERRED STOCK).

On February 24, 2016, the Company completed a public offering of 39.2 million Units (the “February 2016 Unit Offering”).  Each 2,800 units consisted of one share of common stock and 4,200 Series E Warrants. The Company received approximately $5.0 million of net proceeds.  Pursuant to the sale of the units, the Company issued 14,000 shares of common stock and 58,800,000 Series E Warrants. Each 2,800 Series E Warrants were exercisable into one share of common stock at $700.00 per share.  The Series E Warrants expire six years from the date of grant, were not exercisable for one year and which exercise was subject to a shareholder vote and an increase in the number of authorized shares of common stock the Company can issue.

On April 7, 2016, the Company entered into certain warrant exchange agreements (the “Exchange Agreements”), each by and between the Company and a holder of its outstanding Series E Warrants, pursuant to which the Company and each such holder agreed to exchange outstanding Series E Warrants for shares of common stock of the Company. Pursuant to the Exchange Agreements, the Company issued 8,127 shares of common stock of the Company in exchange for the surrender by the holders to the Company of 58,800,000 Series E Warrants exercisable to acquire approximately 21,000 shares of common stock of the Company (representing an exchange ratio of one share of common stock for each 2.584 shares of common stock underlying the surrendered Series E Warrants). The surrendered Series E Warrants were immediately cancelled by the Company and there are not any Series E Warrants issued and outstanding.

On June 1, 2016, the Company completed a public offering of 3,160,000 units (the “June 2016 Unit Offering”).  Each 80 units consisted of one share of common stock and 80 Series G Warrants.  The Company received approximately $5.3 million of net proceeds.  Pursuant to the sale of the units, the Company issued 39,500 shares of common stock and 3,160,000 Series G Warrants.  Each 80 Series G Warrants were initially exercisable into one share of common stock at $152.00 per share, subject to adjustments and expire five years from the date of grant.

On July 11, 2016, the Company issued 1,063 shares of common stock pursuant to the exercise of 85,000 Series G Warrants for cash in the amount of $113,900 or $107.15 per share.

During the three months ended, September 30, 2016,March 31, 2017, certain holders of the 20152016 Notes submitted notices to accelerate previously deferred amortization payments under the 2015 Notes and convert the accelerated payments on the 20152016 Notes into shares of the Company’s common stock pursuant to Section 3(a)(9) of the United States Securities Act of 1933, as amended (the “Conversions”).  In connection with the Conversions, the Company issued 2,119,366762,672 shares of common stock upon the conversion of $8,003,121$3,854,077 in principal amount of 2015the 2016 Notes at a weighted average conversion price of $3.78$5.05 per share (see NOTE 65 CONVERTIBLE NOTES PAYABLE).  In addition, the Company issued 311,000 shares of common stock in connection with a pre-installment notice for the conversion of the 2015 Notes for the installment period of October 31, 2016.

NOTE 109 WARRANTS

As of March 31, 2017, the Company had 67,640,513 warrants outstanding to purchase 1,392 shares of common stock.  The following table outlines the warrants outstanding as of September 30, 2016.  All warrants have been accounted for as derivative liabilities (see NOTE 11 DERIVATIVE LIABILITIES):March 31, 2017:

All Warrants with the exception of the Series H and 2016 Subordination Warrants are exercisable as of September 30, 2016.

Class A Warrants

The Class A Warrants include a provision which provides that the exercise price of the Class A Warrants will be adjusted in connection with certain equity issuances by the Company.  In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $1.90 per share of common stock.  During the three months ended September 30, 2016, conversions of the 2015 Convertible note triggered the adjustment provision and the exercise price was adjusted to $1.87 per share of common stock.

Class B Warrants

The Class B Warrants include a provision which provides that the exercise price of the Class B Warrants will be adjusted in connection with certain equity issuances by the Company.  In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $1.90 per share of common stock.  During the three months ended September 30, 2016, conversions of the 2015 Convertible note triggered the adjustment provision and the exercise price was adjusted to $1.87 per share of common stock.

Series B Warrants

The Series B Warrants include a provision which provides that the exercise price of the Series B Warrants is subject to reduction in connection with certain equity issuances by the Company that are below the then current market price. In June 2016, as a result of the June 2016 Unit Offering, the price reduction provision was trigged and the exercise price was reduced to $16,718.72 per share of common stock. During the three months ended September 30, 2016, conversions of the 2015 Convertible note triggered the adjustment provision and the exercise price was adjusted to $280,315 per share of common stock.

Series C Warrants

During the nine months ended September 30, 2016, 5,229,973 Series C Warrants were exercised pursuant to the cashless exercise provision.  The Company settled 5,091,815 of the Series C Warrant exercises through the issuance of 19,012 shares of common stock and the Company settled 138,158 of the Series C Warrant exercises with cash in the amount of $314,879.

On January 21, 2016 all outstanding Series C Warrants were mandatorily exercised utilizing the cashless provision of the warrants and the corresponding shares of common stock issued.  As of September 30, 2016 there are 47,528 Series C Warrant certificates that have yet to be delivered to the Company representing 190 shares of common stock.

Series D Warrants

The Series D Warrants include a provision which provides that the exercise price of the Series D Warrants will be adjusted in connection with certain equity issuances by the Company.  In February 2016, as a result of the February 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $560.00 per share of common stock.  In March 2016, pursuant to the approval of the Company’s stockholders of the removal of the exercise floor price, the exercise price was adjusted to $448.00 per share of common stock. In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $152.00 per share of common stock. In July 2016 as a result of the 2016 Notes, the price adjustment provision was triggered and the exercise price was adjusted to $126.40 per share of common stock.

2015 Subordination Warrants  

The 2015 Subordination Warrants include a provision which provides that the exercise price of the 2015 Subordination Warrants will be adjusted in connection with certain equity issuances by the Company subject to a floor exercise price of $7.00 per share of common stock.  In February 2016, as a result of the February 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $560.00 per share of common stock which was the floor exercise price adjusted for the stock splits.  In March 2016, pursuant to the approval of the Company’s stockholders of the removal of the exercise floor price, the exercise price was adjusted to $448.00 per share of common stock. In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price was adjusted to $152.00 per share of common stock. In July 2016, as a result of the issuance of the 2016 Notes, the price adjustment provision was triggered and the exercise price was adjusted to $126.40 per share of common stock.

Series E Warrants 

On April 7, 2016, the Company entered into certain warrant exchange agreements (the “Exchange Agreements”), each by and between the Company and a holder of its outstanding Series E Warrants, pursuant to which the Company and each such holder agreed to exchange outstanding Series E Warrants for shares of common stock of the Company. Pursuant to the Exchange Agreements, the Company issued 8,127 shares of common stock of the Company in exchange for the surrender by the holders to the Company of 58,800,000 Series E Warrants exercisable to acquire approximately 21,000 shares of common stock of the Company (representing an exchange ratio of one share of common stock for each 2.584 shares of common stock underlying the surrendered Series E Warrants). The surrendered Series E Warrants were immediately cancelled by the Company and there are not any Series E Warrants issued and outstanding (see NOTE 9 COMMON STOCK).

Series G Warrants

In connection with the June 2016 Unit Offering, the Company issued Series G Warrants to purchase 39,500 shares of common stock as part of the units sold in the offering (see NOTE 9 COMMON STOCK). The Series G Warrants had an initial exercise price of $152.00.  The warrants contain a provision that the exercise price will adjust if the Company has certain equity issuances for consideration per share that is less than the current exercise price of the Series G Warrants. The Series G Warrants expire 5 years after the date of issuance. On July 11, 2016, 85,000 of the Series G Warrants were exercised for cash in the amount of $113,900. Pursuant to the exercise of these warrants, the Company issued 1,063 shares of common stock. During the three months ended September 30, 2016, conversions of the 2015 Convertible note triggered the adjustment provision and the exercise price was adjusted to $1.87 per share of common stock.  

Series H Warrants

In connection with the issuance of the 2016 Notes, the Company issued 56,250,000 Series H Warrants exercisable for 703,125 shares of common stock. Each Series H Warrant will be exercisable by the holder beginning six months after the date of issuance and continuing for a period five years thereafter. Each Series H Warrant will be exercisable initially at a price equal to $166.40 per share

of common stock, subject to adjustments for certain dilutive events.  During the three months ended September 30, 2016, there have been no adjustments to the exercise price of the Series H Warrants and therefore remains at $166.40 per share of common stock.

2016 Subordination Warrants  

In consideration of the Utah Autism Foundation and Spring Forth Investments LLC entering into subordination agreements in connection with the 2016 Notes, the Company has agreed to issue to the entities warrants exercisable for 21,094 shares of common stock (the “2016 Subordination Warrants”).  The 2016 Subordination Warrants have the same material terms and conditions as the Series H Warrants. Each 2106 Subordination Warrant will be exercisable by the holder beginning six months after the date of issuance and continuing for a period five years thereafter. Each Series H Warrant will be exercisable initially at a price equal to $166.40 per share of common stock, subject to adjustments for certain dilutive events.  During the three months ended September 30, 2016, there have been no adjustments to the exercise price of the Series H Warrants and therefore remains at $166.40 per share of common stock.

Common Warrants

Certain Common Warrants include a provision which provides that the exercise price of these certain Common Warrants will be adjusted in connection with certain equity issuances by the Company.  In June 2016, as a result of the June 2016 Unit Offering, the price adjustment provision was triggered and the exercise price of these certain Common Warrants was adjusted to $152.00 per share of common stock. During the three months ended September 30, 2016, conversions of the 2015 Convertible note triggered the adjustment provision and the exercise price was adjusted to $1.87 per share of common stock. During the nine months ended September 30, 201631, 2017 there were 91,025 Common Warrants94,553 warrants exercisable into 7 shares of common stock that expired without being exercised.  There was no other activity on any other warrants during the period.

The following table summarizes the common stock warrant activity during the ninethree months ended September 30, 2016:March 31, 2017:

Underwriters’ Unit Purchase Option

During the nine months ended September 30, 2016, 121,540 Underwriters’ Unit Purchase Options were exercised for cash in the amount of $1,335,950. Pursuant to the exercise of these options, 121,540 shares of Series E Convertible Preferred Stock were issued and immediately converted into 3 shares of common stock and 972,320 Series C Warrants were issued and immediately exercised pursuant to the cashless exercise provision of the Series C Warrants into 4,434 shares of common stock. There are no outstanding Underwriters’ Unit Purchase Options as of September 30, 2016.

NOTE 11 DERIVATIVE10 FAIR VALUE LIABILITIES

FinancialThe liability for our instruments suchclassified as warrants and embedded conversion options deemed to be derivativefair value liabilities are recorded at fair value at inception and subsequently re-measured to fair value at each reporting date as long as such instruments are classified as derivativefair value liabilities. Changes in the fair value of the derivative liability wasthese liabilities are included as a component of Other income (expense) and has no effect on the Company’s cash flows. The valuation methodologiesmethodology used varyvaries by instrument and includeincludes a modified Black-Scholes option valuation model utilizing the fair value of the underlying common stock and a modified binomial model.model with Monte Carlo simulation. The Company has determined the fair value measurements to be a level 3 measurement (see NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES).

Class A Warrants, Class B Warrants, Series B Warrants and Certain Common Warrants

The Class A Warrants, Class B Warrants and certain common warrants, have an exercise price adjustment provision that in the event the Company sells shares of any additional stock, subject to certain exceptions, at a price per share less than the current exercise price of the respective warrant, the exercise price shall be adjusted to a price equal to the price paid per share for such additional stock. The Series B Warrants have an exercise price adjustment provision that in the event the Company sells shares of any additional stock, subject to certain exceptions, at a price per share less than the then current market price, the exercise price shall be adjusted to a price based on a formula defined in the warrants agreement. Such exercise price adjustments prohibit the Company from being able to conclude that the warrants are indexed to the Company’s own stock. Accordingly, these warrants are accounted for as derivative liabilities and are recorded at fair value at each reporting date with the change in fair value being recorded in earnings for the period. During the three months ended September 30, 2016, as a result of conversions on the 2015 Note, the price adjustment provision was triggered for our Class A Warrants, Class B Warrants, Series B Warrants and certain common warrants and the exercise price per share was adjusted accordingly.

The fair value of these warrants was calculated using a Black-Scholes option valuation model utilizing the fair value of underlying common stock. Black-Scholes has inherent limitations for use in the case of a warrant with a price protection provision, since the model is designed to be used when the inputs to the model are static throughout the life of a security. Due to the significant variance between the fair market value of the stock and the exercise price, the Black-Scholes option-pricing model resulted in a fair value that approaches the current market value of the stock. As such, the aggregate fair value of the Class A, Class B, Series B and certain other common warrants was estimated to be $231 at September 30, 2016.

Series C Warrants and Unit Purchase Option

The Series C Warrants contained a cashless exercise provision using a predetermined Black Scholes Value. Such provision, if exercised by the holder, would require the Company to settle these warrants, at its option, either by cash payment or the granting of a variable number of common shares. This provision results in the potential for the Company to either have to net cash settle the warrant or potentially issue an indeterminate number of common shares which prohibits the Company from being able to conclude that the warrants are indexed to the Company’s own stock. Accordingly, the warrants and the unit purchase option are accounted for as derivative liabilities and are recorded at fair value at each reporting date with the change in fair value being recorded in earnings for the period. During the nine months ended September 30, 2016 all of the remaining Series C Warrants and unit purchase options were exercised.

Convertible Notes Conversion Feature – 2015 Note2016 Notes

The convertible notes issued in December 20152016 Notes contain provisions that protect holders from future issuances of the Company’s common stock at prices below such convertible notes’ respective conversion price. These provisions could result in modification of the conversion price due to a future equity offering and as such the conversion feature cannot be considered indexed to the Company’s own stock. The 20152016 Notes also providesprovide that the Company will repay the principal amount at an initial conversion rate subject to certain adjustments. These features represent an embedded derivative that requires bifurcation and are recorded at fair value at each reporting period with the change in fair value being recorded in earnings for the period.

As discussed in NOTE 65 CONVERTIBLE NOTES PAYABLE, a portion of the 2015 Note2016 Notes was converted and redeemed during the three months ended September 30, 2016,March 31, 2017, which resulted in an extinguishment of the derivative liability (included in lossgain on extinguishment of debt) of approximately $4.8$19.5 million. In order to appropriately calculate the extinguishment, expense, the derivative liability was marked to fair value at each extinguishment date during the period.period resulting in a change in fair value in the amount of $20.8 million. The fair value of the derivative was calculated at the various extinguishment dates using a modified binomial model to reflect different scenarios where reset may be triggered using the following range of assumptions: