Annual report pursuant to Section 13 and 15(d)

NOTE 10 - FAIR VALUE MEASUREMENT

v3.19.1
NOTE 10 - FAIR VALUE MEASUREMENT
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]

NOTE 10 – FAIR VALUE MEASUREMENT


The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”). ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:


Level 1 – Quoted prices in active markets for identical assets or liabilities.


Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.


Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.


All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.


To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.


Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the consolidated financial statements.


The carrying value of the Company’s cash and cash equivalents, accounts payable and other current assets and liabilities approximate fair value because of their short-term maturity.


As of December 31, 2018 and 2017, the Company did not have any items that would be classified as level 1 or 2 disclosures.


As of December 31, 2018 and 2017, the Company did not have any derivative instruments that were designated as hedges.


There were no derivative and warrant liability as of December 31, 2018.


The derivative and warrant liability as of December 31, 2017, in the amount of $685,922 and $2,358,240, respectively, has a level 3 classification.


The following table provides a summary of changes in fair value of the Company’s level 3 financial liabilities as of December 31, 2018:


   

Warrant

Liability

   

Derivative

 

Balance, December 31, 2016

  $ 1,937,234     $ 288,934  

Total (gains) losses

               

Initial fair value of warrant liability at date of issuance

    652,054       -  

Initial fair value of derivative at date of issuance of Series D Preferred Stock

    -       397,162  

Transfers out due to conversion of Series C Preferred Stock

    -       (20,757

)

Mark to market to December 31, 2017

    (231,048

)

    20,583  

Balance, December 31, 2017

    2,358,240       685,922  

Total (gains) losses

               

Transfers out due to the adoption of ASU 2017-11 effective January 1, 2018

    (2,358,240

)

    (685,922

)

Balance, December 31, 2018

    -       -  

Gain (loss) on change in warrant and derivative liabilities for the year ended December 31, 2018

  $ -     $ -  

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases, therefore decreasing the liability on the Company’s balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments.