• Filing Date: 2019-02-14
  • Form Type: 10-Q
  • Description: Quarterly report
v3.10.0.1
D. FAIR VALUE MEASUREMENTS
3 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
D. FAIR VALUE MEASUREMENTS

In accordance with ASC 820-10, “Fair Value Measurements,” the Company determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company generally applies the income approach to determine fair value. This method uses valuation techniques to convert future amounts to a single present amount. The measurement is based on the value indicated by current market expectations with respect to those future amounts.

 

ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to active markets for identical assets and liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:

 

●  Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities

 

●  Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and amounts derived from valuation models where all significant inputs are observable in active markets

 

●  Level 3 – Unobservable inputs that reflect management’s assumptions

 

For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.

 

The table below sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the condensed balance sheet at December 31, 2018:

 

   

Quoted Prices in Active Markets for Identical Assets or Liabilities

 (Level 1)

   

Significant Other Observable Inputs

 (Level 2)

   

Significant Unobservable Inputs

 (Level 3)

    Total  
                         
Derivative instruments   $ -     $ -     $ 3,760,758     $ 3,760,758  

 

The table below sets forth the assets and liabilities measured at fair value on a recurring basis, by input level, in the condensed balance sheet at September 30, 2018:

 

   

Quoted Prices in Active Markets for Identical Assets or Liabilities

(Level 1)

   

Significant Other Observable Inputs

(Level 2)

   

Significant Unobservable Inputs

(Level 3)

    Total  
                         
Derivative instruments   $ 33     $ -     $ 9,317,031     $ 9,317,064  

  

The following sets forth the reconciliation of beginning and ending balances related to fair value measurements using significant unobservable inputs (Level 3) for the three months ended December 31, 2018 and the year ended September 30, 2018:

 

    3 months ended     12 months ended  
   

December 31,

2018

   

September 30,

2018

 
             
Beginning balance   $ 9,317,031     $ 2,020,629  
Issuances     -       -  
Exercises     -       (595,780 )
Realized and unrealized (gains) and losses     (5,556,273 )     7,892,182  
Ending balance   $ 3,760,758     $ 9,317,031  

 

The fair values of the Company’s derivative instruments disclosed above under Level 3 are primarily derived from valuation models where significant inputs such as historical price and volatility of the Company’s stock, as well as U.S. Treasury Bill rates, are observable in active markets.