NOTE 14. CHANGE IN ACCOUNTING PRINCIPLE

During the quarter ended December 31, 2017, we early adopted ASU 2017-11, which eliminates the requirement to consider “down round” features when determining whether certain equity-linked instruments or embedded features are indexed to an entity’s own stock. Our 12% Warrants were treated as derivative instruments, because they include a “down round” feature, whereby if we issue equity-based instruments at a price below the exercise price of the 12% Warrants, the exercise price of the 12% Warrants would be adjusted. Upon adoption of the new accounting principle, the 12% Warrants qualify for the exception from derivative treatment. We have retrospectively adjusted our consolidated financial statements for each prior reporting period to reflect this change in accounting principle.

The changes to our consolidated statement of operations are as follows:

Three months ended September 30, 2017


		Previously Reported		Currently Reported		Effect of Change
Amortization of debt discount	$	284,900	$	193,820	$	(91,080)
Gain on derivative warrant liability		(2,421,000)		–		2,421,000
Total other (income) expense, net		(2,054,537)		275,383		2,329,920
Net income (loss)		586,873		(1,743,047)		(2,329,920)
Net income (loss) per share	$	0.03	$	(0.08)	$	(0.11)

Nine months ended September 30, 2017


		Previously Reported		Currently Reported		Effect of Change
Amortization of debt discount	$	1,134,432	$	750,466	$	(383,966)
Gain on derivative warrant liability		(10,580,000)		–		10,580,000
Total other (income) expense, net		(9,205,188)		990,846		10,196,034
Net income (loss)		4,225,197		(5,970,837)		(10,196,034)
Net income (loss) per share	$	0.21	$	(0.30)	$	(0.50)

The changes to our consolidated statement of cash flows for the nine months ended September 30, 2017, are as follows:


		Previously Reported		Currently Reported		Effect of Change
Net income (loss)	$	4,225,197	$	(5,970,837)	$	(10,196,034)
Amortization of debt discount		1,134,432		750,466		(383,966)
Gain on derivative warrant liability		(10,580,000)		–		10,580,000
Net cash used in operating activities		(2,124,013)		(2,124,013)		–

Non-Cash Transactions
Portion of Warrant derivative liability recorded as additional paid-in capital upon exercise of warrants		7,301,000		–		(7,301,000)