Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 12 Months Ended
Dec. 31, 2018
Fair Value Measurements  
NOTE 13. 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. As of December 31, 2018, the Company did not hold any financial assets or liabilities measured at fair value on a recurring basis. This was due to adoption of ASU 2017-11, which resulted in the reclassification of conversion feature derivative liabilities to equity as of January 1, 2018: 

 

    Fair Value at December 31,     Fair Value Measurement Using  
Description   2017     Level 1     Level 2     Level 3  
                         
Derivative Liabilities – Conversion Feature   $ 9,331,400     $ -     $ -     $ 9,331,400  
                                 
    $ 9,331,400     $ -     $ -     $ 9,331,400  

 

The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

Balance at December 31, 2016   $ 6,987,000  
         
Change in Fair Market Value of Conversion Feature     3,494,550  
Derivative Debt Converted into Equity     (14,223,550 )
Issuance of Debt Instruments with Derivatives     13,073,400  
         
Balance at December 31, 2017   $ 9,331,400  
         
Reclassification of Derivative Liabilities to Equity     (9,331,400 )
         
Balance at December 31, 2018   $ -  

  

The following table presents a reconciliation of the Black Oak Contingent Consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

 

Roll forward of derivative liabilities - Contingent Consideration

       
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 December 31, 2017 and Thereafter   $ -  

  

Due to our adoption of ASU 2017-11, the Company did not have any derivative liabilities as of December 31, 2018. The Company estimated the fair value of the derivative liabilities as of December 31, 2017 using the Black-Scholes-Merton option pricing model using the following assumptions:

 

    December 31,  
    2017  
       
Stock Price   $ 2.25 - $5.85  
Conversion and Exercise Price   $ 1.80 - $6.60  
Annual Dividend Yield     -  
Expected Life (Years)   0.46 - 3.42  
Risk-Free Interest Rate   1.04% - 2.50 %
Expected Volatility   43.80% - 123.56 %

   

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 December 31, 2018 and 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. See “Note 8 - Property, Equipment and Leasehold Improvements, Net” for further information on impairment of fixed assets. See “Note 9 – Intangible Assets, Net” for further information on impairment of intangible assets.