Quarterly report pursuant to Section 13 or 15(d)

Note 3 - Fair Value Measurements

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Note 3 - Fair Value Measurements
6 Months Ended
Jun. 30, 2017
Notes to Financial Statements  
Fair Value Disclosures [Text Block]
Note
3.
  Fair Value Measurements
 
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These levels are:
 
·
Level
1
– inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
 
·
Level
2
– inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are
not
active, and model-based valuation techniques (e.g. the Black-Scholes model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates, and forward and spot prices for currencies and commodities.
 
·
Level
3
– inputs are generally unobservable and typically reflect management's estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.
 
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
We have segregated our financial assets and liabilities that are measured at fair value on a recurring into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.
 
The inputs used in measuring the fair value of cash and cash equivalents are considered to be Level
1
in accordance with the
three
-tier fair value hierarchy. The fair value of all other financial instruments (prepaid expenses, accounts payable and accrued expenses) approximate their carrying values because of their short-term nature. The fair value of our long-term indebtedness is estimated based on Level
2
quoted prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities and approximates the carrying value.
 
At
June 30, 2017
and
December 31, 2016,
we had certain common stock purchase warrants issued in connection with our
May 2016
capital raises (See Note
5
) that are accounted for as derivative instruments whose fair value was determined using Level
3
inputs. The following table identifies the carrying amounts of such liabilities:
    Level 1   Level 2   Level 3   Total
Liabilities                                
Derivative instruments - stock purchase warrants   $
-
    $
-
    $
3,921,917
    $
3,921,917
 
Balance at December 31, 2016   $
-
    $
-
    $
3,921,917
    $
3,921,917
 
                                 
Derivative instruments - stock purchase warrants   $
-
    $
-
    $
3,267,408
    $
3,267,408
 
Balance at June 30, 2017   $
-
    $
-
    $
3,267,408
    $
3,267,408
 
 
The following table presents the activity for those items measured at fair value on a recurring basis using Level
3
inputs for the
six
months ended
June 30, 2017:
 
    Derivative
instruments - stock
purchase warrants
Balance at December 31, 2016   $
3,921,917
 
Exercise of warrants    
(3,737,434
)
Change in fair value - loss    
3,082,925
 
Balance at June 30, 2017   $
3,267,408
 
 
The following table presents the activity for those items measured at fair value on a recurring basis using Level
3
inputs for the
six
months ended
June 30, 2016:
 
    Derivative
instruments - stock
purchase warrants
Balance at December 31, 2015   $
-
 
Issuance of warrants    
4,582,170
 
Change in fair value - gain    
(757,275
)
Balance at June 30, 2016   $
3,824,895
 
 
The (gains) losses resulting from the changes in the fair value of the derivative instruments are classified as the “change in the fair value of derivative instruments” in the accompanying condensed consolidated statements of operations. The fair value of the common stock purchase warrants is determined based on the Black-Scholes option pricing model for “plain vanilla” stock options and other pricing models as appropriate, and includes the use of unobservable inputs such as the expected term, anticipated volatility and expected dividends. Changes in any of the assumptions related to the unobservable inputs identified above
may
change the instrument’s fair value; increases in expected term, anticipated volatility and expected dividends generally result in increases in fair value, while decreases in these unobservable inputs generally result in decreases in fair value.
 
We do
not
have any financial assets and liabilities that are measured at fair value on a non-recurring basis.
 
Nonfinancial assets and liabilities measured at fair value
We do
not
have any non-financial assets and liabilities that are measured at fair value on a recurring basis.
 
We measure our long-lived assets, including property, plant, and equipment, and patents, at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired.
No
such fair value impairment was recognized in the
three
or
six
months ended
June 30, 2017
and
2016.