Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2017
Notes to Financial Statements  
NOTE 11. FAIR VALUE MEASUREMENTS

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of the dates indicated:

 

    Fair Value at September 30,     Fair Value Measurement Using  
Description   2017     Level 1     Level 2     Level 3  
                         
Derivative Liabilities – Conversion Feature   $ 4,639,000     $ -     $ -     $ 4,639,000  
                                 
    $ 4,639,000     $ -     $ -     $ 4,639,000  

 

    Fair Value at December 31,     Fair Value Measurement Using  
Description   2016     Level 1     Level 2     Level 3  
                         
Derivative Liabilities – Conversion Feature   $ 6,987,000     $ -     $ -     $ 6,987,000  
Liability – Contingent Consideration     12,085,859       -       -       12,085,859  
                                 
    $ 19,072,859     $ -     $ -     $ 19,072,859  

 

The Company estimates the fair value of the derivative liabilities using the Black-Scholes-Merton option pricing model using the following assumptions:

 

    September 30,     December 31,  
    2017     2016  
             
Stock Price   $0.17 - $0.34     $0.29 - $0.49  
Conversion and Exercise Price   $0.12 - $0.44     $0.22 - $0.50  
Annual Dividend Yield   -     -  
Expected Life (Years)   0.45 - 3.42     1.5 - 4.0  
Risk-Free Interest Rate   1.04% - 2.50%     2.50%  
Expected Volatility   43.80% - 123.56%     120.30%-144.03%  

 

 

Volatility is based on historical volatility of our common stock. Historical volatility was computed using weekly pricing observations for our common stock that correspond to the expected term. This method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants and conversion features.

 

No financial assets were measured on a recurring basis as of September 30, 2017 and December 31, 2016.

 

The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2017:

 

Balance at December 31, 2016   $ 6,987,000  
         
Change in Fair Market Value of Conversion Feature     (1,122,050 )
Derivative Debt Converted into Equity     (9,106,950 )
Issuance of Debt Instruments with Derivatives     7,881,000  
         
Balance at September 30, 2017   $ 4,639,000  

 

The following table presents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2017:

 

Balance at December 31, 2016   $ 12,085,859  
         
Change in Fair Market Valuation of Contingent Consideration     4,426,047  
Payment of Contingent Consideration in Cash     (2,088,000 )
Settlement of Contingent Consideration     (4,739,638 )
Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital     (4,692,697 )
Gain on Settlement of Contingent Consideration     (4,991,571 )
         
Balance at September 30, 2017   $ -  

 

Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

 

Non-financial assets, such as property, equipment and leasehold improvements, goodwill, and intangible assets, are required to be measured at fair value only when an impairment loss is recognized. The Company recorded an impairment charge related to property during the three and nine months ended September 30, 2017, see“Note 6 - Property, Equipment and Leasehold Improvements, Net” for further information. There were no impairment charges recorded for the three and nine months ended September 30, 2016.