Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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Fair Value Measurements
6 Months Ended
Jun. 30, 2015
Notes to Financial Statements  
Fair Value Measurements

9.  Fair Value Measurements

 

Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the authoritative guidance establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions. This hierarchy requires companies to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, we measure certain financial assets and liabilities at fair value, including our derivative liabilities.

 

The following table presents assets and liabilities that are measured and recognized at fair value as of June 30, 2015 on a recurring and non-recurring basis:

 

Description   Level 1     Level 2     Level 3     Gains (Losses)  
Goodwill (non-recurring)   $ -     $ -     $ 1,921,072     $ -  
Intangibles, net (non-recurring)   $ -     $ -     $ 2,278,881     $ -  
Derivatives (recurring)   $ -     $ -     $ 49,474     $ (6,815)  
Earn-out payable (non-recurring)   $ -     $ -     $ 838,000     $ 2,000  

 

 

 

The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2014 on a recurring and non-recurring basis:

 

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
Derivatives (recurring)   $ -     $ -     $ 42,659     $ 63,517  
Earn-out payable (non-recurring)   $ -     $ -     $ 840,000     $ 1,492,000  

 

The change in fair value of these liabilities is included in other income (expense) in the condensed consolidated statements of operations. The assumptions used in the Monte-Carlo simulation used to value the derivative liabilities involve expected volatility in the price of our common stock, estimated probabilities related to the occurrence of a future financing, and interest rates. As all the assumptions employed to measure this liability are based on management’s judgment using internal and external data, this fair value determination is classified in Level 3 of the valuation hierarchy.

 

See Note 6 for a table that provides a reconciliation of the derivative liabilities from December 31, 2014 to June 30, 2015.