Note 11 - Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

11. Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined 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 must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in

one

of the following

three

levels of the fair value hierarchy, of which the

first

two

are considered observable and the last is considered unobservable:

•

      Level

1—Quoted

prices in active markets for identical assets or liabilities.

•

      Level

2—Observable

inputs (other than Level

1

quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are

not

active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•

     Level

3—Unobservable

inputs that are supported by little or

no

market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Accordingly, transfers between levels within the valuation hierarchy occur when there are significant changes to the inputs, such as increases or decreases in market activity, changes to the availability of current prices, changes to the transparency to underlying inputs, and whether there are significant variances in quoted prices. Transfers in and/or out of any level are assumed to occur at the end of the period.

The following table presents the Company

’s assets and liabilities that are measured at fair value on a recurring basis:

	September 30, 2017
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents	$	1,216,000	$	—	$	—
Certificate of deposit	$	10,020,164
Liabilities
Common stock warrant liability	$	—	$	—	$	16,316,054

	December 31, 2016
	(Level 1)		(Level 2)		(Level 3)
Assets
Cash and cash equivalents	$	1,552,852	$	—	$	—

The reconciliation of the common stock warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level

3

) is as follows:

	Common Stock Warrant Liability
Balance at December 31, 2016	$	—
Issued in connection with the Series A convertible preferred stock		35,225,846
Change in fair value		(18,909,792	)
Balance at September 30, 2017	$	16,316,054

The common stock warrants issued in connection with the Series A convertible preferred stock are classified as liabilities on the accompanying balance sheet at

September 

30,

2017.

The liability is marked-to-market each reporting period with the change in fair value recorded as either income or expense in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the liability to be reclassified to stockholders’ equity. The fair value of the warrant liability is estimated using the Black-Scholes model and assumptions used to value the warrant liability as of

September 30, 2017

were as follows:

Stock price	$	1.66
Exercise price	$	2.22
Expected term (in years)		4.5
Risk-free interest rate		1.8	%
Expected volatility		109.3	%
Dividend yield		—