Annual report pursuant to Section 13 and 15(d)

FAIR VALUE MEASUREMENTS

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FAIR VALUE MEASUREMENTS
 12 Months Ended
Dec. 31, 2016
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 December 31,     Fair Value Measurement Using  
Description   2016     Level 1     Level 2     Level 3   
Derivative Liabilities – Conversion Feature   $ 6,975,000     $ –     $ –     $ 6,975,000  
Liability - Black Oak Contingent Consideration     12,085,859       –       –       12,085,859  
                                 
    $ 19,060,859     $ –     $ –     $ 19,060,859  

 

 

 

   Fair Value at December 31,     Fair Value Measurement Using  
Description   2015     Level 1     Level 2     Level 3  
Derivative Liabilities – Conversion Feature   $ 743,400     $ –     $ –     $ 743,400  
Liability - Black Oak Contingent Consideration     –       –       –       –  
                                 
    $ 743,400     $ –     $ –     $ 743,400  

No financial assets were measured on a recurring basis as of December 31, 2016 and 2015.

 

   

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 year ended December 31, 2016:

 

Balance at December 31, 2014   $ 1,253,000  
         
Change in Fair Market Value of Conversion Feature     (1,800,100 )
Issuance of Equity Instruments with Debt Greater Than Debt Carrying Amount     561,000  
Derivative Debt Converted into Equity     (1,168,500 )
Issuance of Debt Instruments with Derivatives     1,898,000  
         
Balance at December 31, 2015     743,400  
         
Change in Fair Market Value of Conversion Feature     489,700  
Issuance of Equity Instruments with Debt Greater Than Debt Carrying Amount     1,487,500  
Derivative Debt Converted into Equity     (14,232,100 )
Issuance of Debt Instruments with Derivatives     18,486,500  
         
Balance at December 31, 2016   $ 6,975,000  

 

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) for the year ended December 31, 2016:

 

Balance at December 31, 2015   $ –  
         
Purchase of Black Oak Gallery     12,754,553  
Change in Fair Market Valuation of Black Oak Contingent Consideration     (668,694 )
         
Balance at December 31, 2016   $ 12,085,859  

 

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

  2016   2015   2014  
Stock Price $0.29 - $0.49   $0.09 - $0.22   -  
Conversion and Exercise Price $0.22 - $0.50   $0.07 - $0.16   -  
Annual Dividend Yield -   -   -  
Expected Life (Years) 1.5 - 4.0   1.0 - 4.0   -  
Risk-Free Interest Rate 2.50%   2.50%   -  
Expected Volatility 120.30% - 144.03%   98.35% - 148.71%   -  

 

Expected 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. We believe this method produces an estimate that is representative of our expectations of future volatility over the expected term of these derivative liabilities.

  

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 did not record an impairment charge related to these assets during the years ended December 31, 2016, 2015 or 2014.