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Fair Value Measurements
 9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements

11. Fair Value Measurements

 

The Company accounts for certain warrants and the embedded conversion features of the 8% Promissory Notes and 10% Convertible Debentures (both as described in Note 12) as derivative liabilities, which requires that the Company carry such amount in its condensed consolidated balance sheets as a liability at fair value, as adjusted at each reporting period-end.

 

The Company determined, due to their greater complexity, prior to the reset provision (as described in Note 12), the fair value of the L2 Warrants (as described in Note 14) and the embedded conversion feature with respect to the 8% Promissory Notes, as of the date of repayment, and 10% Convertible Debentures, as of the date of conversion, using appropriate valuation models derived through consultations with the Company’s independent valuation firm. The Company determined the fair value of the Strome Warrants (as described in Note 14) utilizing the Black-Scholes valuation model as further described below. After the reset provision, the Company determined the fair value of the L2 Warrants utilizing the Black-Scholes valuation model as further described below since such valuation model meets the fair value measurement objective based on the substantive characteristics of the instrument. These warrants and the embedded conversion features are classified as Level 3 within the fair-value hierarchy. Inputs to the valuation model include the Company’s publicly-quoted stock price, the stock volatility, the risk-free interest rate, the remaining life of the warrants, notes and debentures, the exercise price or conversion price, and the dividend rate. The Company uses the closing stock price of its common stock over an appropriate period of time to compute stock volatility. These inputs are summarized as follows:

 

L2 Warrants – Valuation model: Black-Scholes option-pricing; expected life: 4.69 years; risk-free interest rate: 2.94%; volatility factor: 120.50%; dividend rate: 0.0%; transaction date closing market price: $0.61; exercise price: $0.50.

 

Strome Warrants – Valuation model: Black-Scholes option-pricing; expected life: 4.71 years; risk-free interest rate: 2.94%; volatility factor: 120.34%; dividend rate: 0.0%; transaction date closing market price: $0.61; exercise price: $0.50.

 

The following table represents the carrying amount, valuation and roll-forward of activity for the Company’s warrants accounted for as a derivative liability and classified within Level 3 of the fair-value hierarchy for the nine months ended September 30, 2018:

 

   

L2

Warrants

    

Strome

Warrants

    

Total

Derivative

Liabilities

  
Carrying amount at January 1, 2018   $ -     $ -     $ -  
Issuance of warrants on June 11, 2018     312,749       -       312,749  
Issuance of warrants on June 15, 2018     288,149       1,344,648       1,632,797  
Change in fair value     (55,026 )     (577,199 )     (632,225 )
Carrying amount at September 30, 2018   $ 545,872     $ 767,449     $ 1,313,321  

 

The following table represents the carrying amount, valuation and a roll-forward of activity for the embedded conversion feature liability with respect to the 8% Promissory Notes and 10% Convertible Debentures accounted for as a derivative liability and classified within Level 3 of the fair-value hierarchy for the nine months ended September 30, 2018:

 

    8% Promissory Notes     10% Convertible Debentures     Series G Conversion Feature    

Total

Derivative Liabilities

  
Carrying amount at January 1, 2018   $ -     $ -     $ 72,563     $ 72,563  
Recognition of conversion feature on June 11, 2018     78,432       -       -       78,432  
Recognition of conversion feature on June 15, 2018     81,169       471,002       -       552,171  
Derivative liability change upon extinguishment of debt     (29,860 )     (1,042,000 )     -       (1,071,860 )
Change in fair value     (129,741 )     570,998       (72,563 )     368,694  
Carrying amount at September 30, 2018   $ -     $ -     $ -     $ -  

 

The change in valuation of derivative liabilities recognized in the condensed consolidated statements of operations as (expense)/income for the three months and nine months ended September 30, 2017 was $(3,311) and $6,939, respectively.

 

In addition, the carrying amount of the embedded conversion feature with respect to the Series G Preferred Stock (as described in Note 13) as of September 30, 2018 and December 31, 2017 was $29,735 (no further fair value required at each period-end as this is not considered a derivative liability) and $72,563, respectively.

 

The Company did not have any derivative liabilities as of or during the three months and nine months ended September 30, 2017.