Note 3 - Fair Value Measurements

3 Months Ended

Mar. 31, 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, accrued expenses and long-term debt) approximate their carrying values because of their short-term nature.

At

March

31,

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 assets and 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	$	-	$	-	$	3,884,972	$	3,884,972
Balance at March 31, 2017	$	-	$	-	$	3,884,972	$	3,884,972

The following table presents the activity for those items measured at fair value on a recurring basis using Level

3

inputs for the

three

months ended

March

31,

2017:

	Derivative instruments - stock purchase warrants
Balance at December 31, 2016	$	3,921,917
Exercise of warrants		(2,778,259	)
Change in fair value		2,741,314
Balance at March 31, 2017	$	3,884,972

We had

no

financial assets or liabilities measured at fair value using Level

3

inputs on a recurring basis during the

three

months ended

March

31,

2016.

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 option 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 embedded conversion options’ 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.

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

months ended

March

31,

2017

and

2016.