Fair Value of Financial Instruments

3 Months Ended

Jun. 30, 2011

Fair Value of Financial Instruments, Policy [Policy Text Block]

NOTE 9 — FAIR VALUE

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.

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 is determined based on the lowest level input that is significant to the fair value measurement.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of June 30, 2011:


	Total			Quoted Prices in Active Markets for Identical Instruments Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3 (A)
Liabilities
Preferred stock derivative	$	(9,052	)	$	-	$	-	$	(9,052	)
Warrant derivative	$	(336,443	)	$	-	$	-	$	(336,443	)
Total	$	(345,495	)	$	-	$	-	$	(345,495	)


(A)	Fair value is estimated based on internally-developed models or methodologies utilizing significant inputs that are unobservable from objective sources.

Level 3 Liabilities comprised of the fair value of issued warrants with reset provisions and the Series D preferred stock with reset provisions.

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of June 30, 2011:


Six Months Ended June 30, 2011:
	Warrant derivative liability			Preferred stock derivative liability
Balance, December 31, 2010	$	2,141,871		$	250,863


Series D preferred stock issuances during the six months ending June 30, 2011					19,273
Warrants issued in connection with credit facility		17,758
Mark-to-market at June 30, 2011:
- - Series D preferred stock derivative liability					(261,084
- Warrants issued with Credit Facility Draw-downs and the new $1.5 million credit facility		(1,823,186	)
Transfers in and/or out of Level 3		-			-

Balance, June 30, 2011	$	336,443		$	9,052

Total gain for the period included in earnings relating to the liabilities held at June 30, 2011 of $2,084,270	$	1,823,186		$	261,084

NewCardio, Inc. 10-Q/A