Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements of Financial Instruments

v2.4.1.9
Fair Value Measurements of Financial Instruments
 12 Months Ended
Dec. 31, 2014
Notes to Financial Statements  
Fair Value Measurements of Financial Instruments

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2014:

 

Description   Level 1     Level 2     Level 3     Gains (Losses)  
Goodwill (non-recurring)   $ -     $ -     $ 1,921,072     $ (4,078,693 )
Intangibles, net (non-recurring)   $ -     $ -     $ 2,010,952     $ (961,436 )
Derivative liabilities (recurring)   $ -     $ -     $ 42,659     $ 63,517  
Earn-out payable (recurring)   $ -     $ -     $ 840,000     $ 1,492,000  

 

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2013:

 

Description   Level 1     Level 2     Level 3     Gains (Losses)  
Goodwill (non-recurring)   $ -     $ -     $ 3,108,964     $ (1,066,068 )
Intangibles, net (non-recurring)   $ -     $ -     $ 935,316     $ (644,170 )
Derivative liabilities (recurring)   $ -     $ -     $ 106,176     $ (3,766,231 )
Earn-out payable (recurring)   $ -     $ -     $ 59,000     $ (28,465 ) 

 

The Company recorded goodwill, intangible assets and an earn-out payable as a result its business combinations, and these assets were valued with the assistance of a valuation consultant and consisted of Level 3 valuation techniques.

 

The Company recorded derivative liabilities as a result of: (i) the variable maturity conversion feature in its convertible notes payable; (ii) the additional security issuance feature in its convertible notes payable notes, common stock and warrants; and (iii) warrants issued to non-employees that were treated as derivative liabilities. These liabilities were valued with the assistance of a valuation consultant using a Monte-Carlo simulation model. The assumptions used in the Monte-Carlo simulation used to value the derivative liabilities involve expected volatility in the Company’s common stock, estimated probabilities related to the occurrence of a future financing, and interest rates. As all the assumptions employed to measure these liabilities are based on management’s judgment using internal and external data, this fair value determination is classified in Level 3 of the valuation hierarchy.

 

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, and accrued liabilities. The estimated fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. None of these instruments are held for trading purposes.