Note 5 - Fair Value Measurements and Financial Instruments

6 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE

5–

FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

ASC Topic

820,

Fair Value Measurement and Disclosures

, defines fair value 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. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of

three

levels:

● Level 1– Quoted prices in active markets for identical assets and liabilities;

● Level 2– Inputs other than level one inputs that are either directly or indirectly observable; and

● Level 3– Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Liabilities measured at fair value on a recurring basis are summarized as follows at

June 30, 2018:

	Fair value measurement using inputs
	Level 1		Level 2		Level 3
Financial instruments:
Series 2023 Note Derivative	$	-0-	$	-0-	$	748,417
Series A Note Derivative	$	-0-	$	-0-	$	8,000,101

The following table summarizes the activity during the

six

months ended

June 

2018

and

2017

for financial instruments at fair value using Level

3:

Balance at December 31, 2017	$	2,047,264	Balance at December 31, 2016	$	2,176,552
Issuance of additional Series 2023 Notes		- 0 -	Issuance of additional Series 2023 Notes		25,038
Issuance of additional Series A Notes		122,750	Issuance of additional Series A Notes		- 0 -
Net unrealized gain (loss) included in operations		6,578,504	Net unrealized gain (loss) included in operations		(1,636,841	)
Balance at June 30, 2018	$	8,748,518	Balance at June 30, 2017	$	564,749

The recorded value of certain financial assets and liabilities, which consist primarily of cash and cash equivalents, receivables, and accounts payable and accrued expenses approximate their fair value at

March 31, 2018

and

December 31, 2017

based upon the short-term nature of the assets and liabilities. Based on borrowing rates currently available to the Company for loans with similar terms, and the remaining short-term period outstanding, the carrying value of notes payable other than PIK notes approximate fair value. The estimated fair value of the PIK Notes Payable was

$12,842,158

and

$11,395,208

at

June 30, 2018

and

December 31, 2017 (

Level

3

), respectively.

For the Company's warrant and PIK note derivative liabilities, Level

3

fair value hierarchy was estimated using a Monte Carlo Model using the following assumptions:

Series 2023 Note derivative liability	Fair Value Measurements
	Using Inputs
	June 30,			December 31,
	2018			2017
Market price and estimated fair value of stock	$	0.17		$	0.05
Exercise price (1)	$	0.59		$	0.59
Term (years)		5.08			5.58
Dividend yield		-0-			-0-
Expected volatility		130.4	%		115.3	%
Risk-free interest rate		2.73	%		2.24	%

(

1

) Exercise price is reflective of amended Series

2023

Notes issued in

December 2017

as discussed in Note

8.

Series A Note derivative liability	Fair Value Measurements
	Using Inputs
	June 30,			December 31,
	2018			2017
Market price and estimated fair value of stock	$	0.17		$	0.05
Exercise price (1)	$	0.40		$	0.40
Term (years)		5.09			5.58
Dividend yield		-0-			-0-
Expected volatility		130.4	%		115.3	%
Risk-free interest rate		2.73	%		2.24	%

(

1

) Exercise price is reflective of amended Series A Notes issued in

December 2017

as discussed in Note

7.