3. Fair Value Measurements

ASC 820 “Fair Value Measurements,” defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 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 under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1— Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.

Level 2— Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model derived valuations whose significant inputs are observable.

Level 3— Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables set forth the fair value of the Company’s financial instruments that were measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.


		March 31, 2019
	(unaudited)
		Level 1		Level 2		Level 3		Total
Warrant liability		$	—	$	—	$	1,275,443	$	1,275,443
Total fair value		$	—	$	—	$	1,275,443	$	1,275,443


	December 31, 2018
	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	220,376	$	220,376
Total fair value	$	—	$	—	$	220,376	$	220,376

The change in the estimated fair value of Level 3 liabilities is summarized below:


	Three Months Ended
	March 31, 2019
	Warrant
	Liability
		(unaudited)
Beginning fair value of Level 3 liability	$	220,376
Additions		1,009,010
Extinguishment		—
Change in fair value		46,057
Ending fair value of Level 3 liability	$	1,275,443

Warrant Liability

The warrants associated with the Level 3 warrant liability were the November 2016 Series A Warrants, the October 2018 Underwriter Warrants, the Notes Payable warrants and the LOC warrant, which at March 31, 2019 were valued at $10,994, $274,018, $874,134, and $116,297 respectively in the Company’s consolidated balance sheet. At December 31, 2018, the warrants associated with the Level 3 warrant liability were the November 2016 Series A Warrants, the October 2018 Underwriter Warrants, which were valued at $7,388 and $212,988, respectively in the Company’s consolidated balance sheet.

The Series A warrant valuation of $7,388 at December 31, 2018 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.23, a strike price of $11.25 per share, an expected term of 3.41 years, volatility of 135.63% and a risk-free discount rate of 2.46%. The Series A warrant valuation of $10,994 at March 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.28, a strike price of $11.25 per share, an expected term of 3.16 years, volatility of 145.72% and a risk-free discount rate of 2.21%.The net change in the fair value of the warrants of $3,606 for the three months ended March 31, 2019 is recorded in the change in fair value of warrants, derivative liability and conversion option liability in the consolidated statements of operations

The October 2018 Underwriter Warrants valuation of $212,988 at December 31, 2018 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.23, a strike price of $0.75 per share, an expected term of 4.76 years, volatility of 135.63% and a risk free discount rate of 2.51%. The October 2018 Underwriter Warrants valuation of $274,018 at March 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.28, a strike price of $0.75 per share, an expected term of 4.51 years, volatility of 145.72% and a risk-free discount rate of 2.23%. The net change in the fair value of the warrants of $61,030 for the three months ended March 31, 2019 is recorded in the change in fair value of warrants, derivative liability and conversion option liability in the consolidated statements of operations

The Note Payable Warrants were issued in March 2019 with an initial valuation of $892,713, computed using the Black-Scholes-Merton pricing model using a stock price of $0.47, a strike price of $0.47 per share, an expected term of 5.0 years, volatility of 145.72% and a risk free discount rate of 2.42%. The Note Payable Warrants valuation of $874,134 at March 31, 2019 was computed using the Black-Scholes-Merton pricing model using a stock price of $0.28, a strike price of $0.47 per share, an expected term of 5.0 years, volatility of 145.72% and a risk-free discount rate of 2.23%. The net change in the fair value of the warrants of $18,579 for the three months ended March 31, 2019 is recorded in the change in fair value of warrants, derivative liability and conversion option liability in the consolidated statements of operations.

The LOC Warrants were issued on March 29, 2019 with a valuation at issuance and at March 31, 2019 of $116,297, computed using the Black-Scholes-Merton pricing model using a stock price of $0.28, a strike price of $0.25 per share, an expected term of 5.0 years, volatility of 145.72% and a risk-free discount rate of 2.23%.