Fair Value Measurements

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

5.  Fair Value Measurements

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.

During the third quarter of 2016 the Company entered into an agreement with an institutional investor providing for the issuance and sale by the Company of 5,048,632 shares of the Company’s common stock and warrants to purchase up to 2,975,444 shares of the Company’s common stock for aggregate gross proceeds of $14.5 million.  In addition, as partial payment for services, the Company issued to the underwriters warrants to purchase up to 252,432 shares of the Company’s common stock.

As noted in Notes 2 and 4, due to the Warrant Amendments in March 2018, the warrant liability was reclassified to additional paid-in capital. Prior to the Warrant Amendments, the Company utilized a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value.  This hierarchy prioritized the inputs into three broad levels as follows:  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company had no assets or liabilities classified as Level 1 or Level 2.  The warrant liability, prior to the Warrant Amendments of the warrants, were classified as Level 3.

The Company classified the warrants as a liability and remeasured the liability to the estimated fair value at December 31, 2017 using the Black Scholes option pricing model with the following assumptions: 

	December 31, 2017
Risk-free interest rate	2.09%
Expected volatility	100.39%
Expected term	4.08 years
Expected dividend yield	0.0%

The following table presents a reconciliation of the Company’s warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2018 and 2017:

	June 30,
	2018			2017
Beginning balance of warrant liability	$	3,701,277		$	4,095,019
Change in fair value upon re-measurement		(433,392	)		1,810,835
Reclassification to Additional Paid-in Capital    due to warrant exercise	–				(1,399,091	)
Reclassification to Additional Paid-in Capital    due to warrant amendment		(3,267,885	)	–
Ending balance of warrant liability	$	-		$	4,506,763

There were no transfers between Level 1 and Level 2 in any of the periods reported.