11. Fair Value Measurements

6 Months Ended

Mar. 31, 2017

11. Fair Value Measurements

The Company measures the fair values of its assets and liabilities using the US GAAP hierarchy levels as follows:

Level 1	The Company does not have any Level 1 inputs available to measure its assets.
Level 2	Certain of the Company’s embedded derivative liabilities are measured on a recurring basis using Level 2 inputs.
Level 3	Certain of the Company’s embedded derivative liabilities are measured on a recurring basis using Level 3 inputs.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Items measured at fair value on a recurring basis include embedded derivatives related to the Company’s warrants and notes payable. During the six months ended March 31, 2017, the Company has not changed the manner in which it values liabilities that are measured at fair value using Level 3 inputs. The following fair value hierarchy table presents information about the Company's financial liabilities measured at fair value on a recurring basis:

		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
March 31, 2017
Derivatives liability	$	-	$	291,603	$	4,004,524	$	4,296,127

September 30, 2016
Derivatives liability		-		281,613		1,772,458		2,054,071

The following is a reconciliation of the opening and closing balances for the derivatives liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the six months ended March 31, 2017:

		Derivatives Liability
Balance, September 30, 2016	$	1,772,458
Issuance of warrants recorded as derivatives		2,511,288
Gain on termination of debt resulting from payments on notes payable		(103,213	)
Gain on derivatives liability resulting from changes in fair value		(176,009	)
Balance, March 31, 2017	$	4,004,524

The Company’s embedded derivative liabilities are re-measured to fair value as of each reporting date. See Note 12 for more information about the valuation methods of derivatives and the inputs used for calculating fair value.